Patrick Phipps, Managing Director – Jacksonville, Colliers
In an interview with Invest:, Patrick Phipps, Jacksonville managing director at Colliers, talked about the challenges that financing has presented to the real estate market. He also highlighted that Jacksonville lags behind other cities in Florida such as Miami, Tampa, or Orlando in terms of real estate trends because of its relatively low population compared to its size.
What are the most significant accomplishments for Colliers in Greater Jacksonville over the past 12 months?
We are on the appraisal side of things, so the accomplishments are not as tangible as with our colleagues on the brokerage side. Nevertheless, we are involved in a lot of deals and are involved with work for the city of Jacksonville and the Downtown Investment Authority. For instance, we worked on the shipyard transactions which are being developed by Shad Khan and handle most of the major appraisals in the city. There is a tangible accomplishment from our side in the sense that we have contributed toward moving downtown forward through our work with the downtown investment authority.
How would you describe the state of the appraisal services sector in the Greater Jacksonville area?
In general, it’s a tough environment for the appraisal industry due to the fact that most firms expanded from 2020 to 2022 but the demand for our services decreased starting in 2023.
Transaction volume has been significantly reduced over the last 18 months for all asset classes with mortgage and interest rates where they are. Multi-family, which was hot for a long time, has experienced a huge drop in transactions and most of the deals we are working on now are either refinancing or completion of projects that were already in progress. Having said that, there has been some movement recently with new deals, mostly on older Class B and C properties where a value-add component still exists. Office is far and away the hardest hit sector and there are a number of distressed assets.
Single-family development has been steady allowing for further expansion of retail to support new communities. Industrial has certainly slowed, but deals are still happening.
What are the prevalent trends in the commercial real estate sector of the Greater Jacksonville area?
There is a lot of mixed-use development, particularly in the downtown and urban areas. If you take the major cities in Florida, Jacksonville tends to lag in the cycle. We are 20 to 30 years behind Tampa because we have not gotten to that real urban life cycle yet. Jacksonville is still much suburban and Downtown has been a struggle, but there has been a lot of movement towards changing that over the last five years even if it’s not particularly visible yet. The redevelopment of the Shipyards, the continued expansion of the Brooklyn area and other projects like the Emerald Trail are moving us in the right direction.
What prevents Jacksonville from being at the forefront of the real estate trends as other cities in Florida?
A lot of those trends are population driven. In terms of actual size, Jacksonville is the largest in the state. It is a huge city, but the population is not there yet. Duval County and its surrounding four counties only have around 1.5 million people, which is pretty small compared to other metropolitan areas.
Having said that, Jacksonville is in a growth cycle where it has become more appealing because of the cost of living. We have seen significant growth in Jacksonville like every city in Florida has experienced since the COVID-19 pandemic.
What are the real estate sectors where Colliers has identified an uptick in demand for its services?
There have not been a lot of transactions in general, so nothing has really stood out. Multifamily has fallen off a little bit, but everything is equally distributed. Multifamily used to be 35 percent of our work because of the heavy development emphasis on multifamily. We still do a lot of single-family work as well as the retail that follows that. Additionally, industrial was hot after the pandemic with everybody looking to expand their distribution networks. While things have cooled there is still a fair amount of speculative industrial real estate being built.
What are the most important challenges that the real estate sector in Jacksonville faces?
It is challenging to finance anything right now. There is more scrutiny, and the deals are tighter and hard to make work on paper. There is a split between buyers and sellers where a lot of sellers are looking at the numbers of 18 months ago and trying to achieve that while that does not make sense for buyers.
With the exception of the office market neither the seller nor the buyer has the upper hand. The narrative out there is that people are not doing well because of inflation and interest rates. While inflation remains stubborn, it has subsided and interest rates have peaked. The reality is that the economy is generally doing well, especially when compared to the rest of the world. The unemployment rate is low, and, while most properties may not be as valuable as people would like, the distress that we had following the crash of 2007-2008 is not there with the exception of office properties.
We have seen an increase in distressed real estate, but there is not a lot of it out there. Nobody has the upper hand because nobody is forced to sell, and buyers cannot force sellers to put properties at a price that they would like. The single-family housing market is a barometer for that. Properties on the market are not selling at 100 percent of list prices, but they are selling relatively quickly at reasonable prices relative to the list price.
What are your expectations in relation to the reduction of interest rates in the short to medium term?
Rate cuts are on the way, but they aren’t going to come as fast or be as sizable as the market wants. The Fed is clearly taking a measured approach and I don’t expect that to change. From a historical perspective, interest rates are not particularly high. Nevertheless, they are high in the context of what we have become accustomed to in the last 10 years. We will see some rate cuts simply because we had such low interest rates, and everybody got accustomed to that. There have also been unintended consequences of raising rates so much so fast, so some of that needs to be unwound. Assuming the Fed can live with inflation in the 2.5% to 3.0% range and stop chasing 2%, I expect rates to come down 100 to 150 basis points over the next two years.
What are the top priorities at Colliers in the Jacksonville market for the next three to four years?
We are on the appraisal side of things, so we are part of the process. Thus, we are not directing where those opportunities are from a property standpoint. Our goal is to maintain our current level of service but also expand on other lines of business and focus within the appraisal industry. So that means expanding our right of way practice, litigation and tax appeal practices and to market our more niche property focuses like marinas and subdivision expertise.
