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(Carl Cronan is editor of Real Estate Florida.)

JACKSONVILLE, FL-The local industrial market appears to be in for tough times ahead, with the national economy taking a toll not just on existing space but the ongoing expansion of the city’s port. Vacancy within the area’s inventory of 95 million square feet measured 8.3% by the end of 2008, up a full percentage point over the year, according to Cushman & Wakefield.

Local brokers expect the first half of 2009 to continue on the same slide as the final quarter of last year, with a possible rebound in the second half. Overall absorption is expected to decline this year as the weak economy pushes down tenant demand, along with asking rents, and speculative construction is limited by a lack of financing.

Investment activity in the Jacksonville industrial market was minimal throughout the past year, with few blockbuster sales. The largest recorded by Cushman & Wakefield was Flagler Development Group’s acquisition of Jacksonville International Tradeport—nine buildings totaling 994,380 square feet—for $72.1 million, or just under $73 per square foot.

“By the end of 2009, we will see if the market has found bottom. If it has, investors will most assuredly return,” says Mark Scott, senior director of global supply chain solutions for Cushman & Wakefield. “Also, how users respond to any pent-up demand would help drive the industrial market out of its doldrums.”

Jacksonville experienced an increase in tenant demand as many build-to-suit projects were completed that were started before last year’s downturn, Cushman & Wakefield stated in its fourth-quarter research report. The year’s largest lease measured 601,500 square feet, signed last July by Dr. Pepper Snapple Group at West Point Trade Center in the city’s giant Westside submarket.

However, the majority of the 3.5 million square feet of net absorption recorded last year resulted from only a handful of deals, observes Jeff Graham, president of Jacksonville-based King Industrial Realty of Florida. “Take those exceptional deals out of the equation and the numbers look very, very different,” he says.

Average asking rents in Jacksonville ended 2008 down slightly at $4.52 per square foot, Cushman & Wakefield figures show. Industrial landlords are offering concessions for the first time in many years, according to local brokers.

Meanwhile, massive expansion of the Port of Jacksonville has prompted an unprecedented amount of construction within the market, with nearly 4.5 million square feet completed last year and 2.1 million square feet under way. Building activity is expected to taper off throughout 2009 as developers continue to struggle to secure construction loans, Cushman & Wakefield states.

“Even all-cash buyers who don’t rely on debt are waiting on the sidelines trying to determine when the bottom of the downturn will be reached,” Graham says. “I believe we still have several quarters to endure before we see any signs of recovering.”

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