Covid-19 dramatically affected commercial real estate in the Jackson market, but not in the way you might expect. There were several trends that emerged in just the last 6 months, from online shopping driving retail store rent down 22%, to skyrocketing retail sale prices which increased 40% due to a freefall in supply. This article examines the January 2021 Jackson MSA commercial property prices, including industrial, office and retail sectors.
Economics 101 states prices should fall since more space has come on the market over the last 12 months, but that only holds true if demand stays constant. Covid-19 affected each sector’s demand differently, and we also experienced unique demand changes for sale properties compared to properties for lease. Let’s drill down into the trends and drivers of both sale and lease prices for the various sectors.
In the industrial category, lease prices only fell 6% to an average of $3.70/SF even though a 30% increase of 250,000 square feet was added to the market. The strong industrial market is driven by the e-commerce trend requiring more inventory storage and faster delivery times. There are 43 properties for lease totaling 1.1 million square feet and last month 2 spaces were leased above market, averaging $3.83/SF. The average time on the market is 454 days.
In the office sector, there are 285 office spaces for lease, totaling 1.2 million square feet averaging $15.53/SF. Space for lease increased 80,000 square feet over the last 12 months yet prices increased 8% due to steady demand. There is a transition away from leasing large spaces as businesses integrate work from home, so as leases mature over the next few years, there will be reduced demand for office space which should cause prices to fall dramatically. This will result in declining office values which will also affect bank loans and cause more office properties to come up for sale. Last month, one office space was leased at $16.50/SF which was 6% above market.
There are 63 retail properties on the market totaling 366,000 square feet averaging $9.21/SF. In the last 30 days, no retail space was leased or sold. Approximately 25,000 square feet have been added to the market the last 12 months and prices declined 13%. In just the last 6 months, lease prices fell 20% as landlords struggle to keep their tenants.
The Jackson commercial real estate market totals 4 million square feet of property for sale, a 30% increase of 800,000 square feet in just 12 months, with industrial as the largest sector in square footage but the office sector as the highest value. Sale prices in the last 12 months dropped 17% in the office and industrial sectors but increased 64% in the retail sector.
In the industrial category, sale prices only fell 17% to an average of $21.30/SF even though 75%, a whopping 800,000 square feet, was added to the market. There are 40 properties for sale totaling 1.9 million square feet. This month, 2 properties sold for 50% higher than the market, averaging $36/SF.
In the office sector, there are 64 properties for sale totaling 1.1 million square feet, averaging $66.31/SF. Properties for sale increased 250,000 square feet (30%) over the last 12 months causing prices to drop 17%. Last month, 4 office properties sold for $126/SF which was 10% below their list price. They were on the market 314 days. In the future as rents fall so does the valuation, which combined with additional property coming up for sale should lead to a perfect storm of a freefall in prices.
There are 34 retail properties for sale totaling 669,000 square feet averaging $61/SF but in the last 30 days no retail space was sold. Approximately 220,000 square feet (25%) has been removed from the market the last 12 months causing sale prices to increase 64%.
In summary, Covid-19 brought several surprises to the Jackson commercial real estate market. In the lease sector, prices declined the last 12 months in the retail and industrial markets but increased in the office market despite 80,000 SF added to the market. This strength in the office market is expected to reverse course as lease periods come to an end.
Among properties for sale, prices fell 17% in the office and industrial sectors, but skyrocketed 64% in the retail sector due to 220,000 square feet taken off the market.
View article in the Mississippi Business Journal.