So why give a company like Amazon such incentives? Simply put: because it’s worth it. New York State estimated that Amazon would generate $27.5 billion in state and city revenue over 25 years, and employ over 100,000 people, including 25,000 directly employed by Amazon at an average salary of $150,000 per year. That is a game-changer for any city.
As one of the leading commercial real estate services companies in Jacksonville, Colliers International Northeast Florida is frequently asked why Jacksonville’s Downtown isn’t more vibrant — an especially timely question as our community deliberates on the future of the Jacksonville Landing and the land on which it is built.
Why don’t we see any cranes on the skyline? What will it take to make Downtown more active in the evenings and on weekends? Why aren’t more people living in Downtown?
The simple answer is demand.
We have a demand-side problem in Jacksonville. More specifically, we lack the demand drivers necessary to generate the significant projects required to transform Downtown Jacksonville into the thriving area that many want to see. Incidentally, we also have a supply problem in that we have too much developable land within close proximity to the central business district. But given that we can’t magically eliminate that, let’s focus on what we can control: demand. The top demand driver in commercial real estate is employment… and lots of it.
Below is a chart compiled with help from Colliers International’s research department, summarizing data from the Bureau of Labor Statistics and CoStar. It shows nonfarm employment growth between 1997 and 2019, alongside commercial real estate statistics of note. Some of the markets shown are more comparable to Jacksonville than others, but all are frequently held up as shining examples of “what could be” in the River City. Not surprisingly, markets with the greatest change in employment growth experienced the most commercial development over the same period.
Can you imagine what would happen to Downtown Jacksonville if a major corporation like Amazon announced it would soon be opening a second headquarters, bringing with it 25,000 jobs? Let’s do some quick math…
Where would these 25,000 people live? Even if they all bunk up (two people per housing unit), and assuming 35% of them choose to rent, Jacksonville would need 4,375 new apartments (15+ communities) and 8,125 new houses.
At 100 square feet of office space per person, Downtown Jacksonville would need 2.5 million square feet of office space. That is more than three new office buildings the size of Bank of America Tower and one new building the size of VyStar’s tower at 76 S. Laura Street.
Using a conservative estimate of retail square footage per capita of 10-15 square feet, Downtown Jacksonville and its surrounding areas would need 250,000-375,000 square feet of retail space to support these new employees.
Clearly, some of the above-referenced demand would be absorbed by existing inventory — but the vast majority would require new construction.
If you think those numbers are eye-popping, the above analysis says nothing of the small army needed to support this type of activity in the urban core: printer/copier companies, UPS/FedEx drivers, sanitation workers, postal workers, teachers, babysitters, baristas, servers, construction workers, police officers and firefighters. The list goes on. The potential numbers here are even more staggering than the direct impacts.
Yes, Jacksonville competed for HQ2 and lost. It is unlikely that Jacksonville will land a significant corporate relocation similar to Amazon in the near future for a number of reasons. First, labor availability is not strong enough to support the hiring needs of an employer of this size. There simply aren’t 25,000 people in Jacksonville with the skills needed to work at a place like Amazon. Second, our existing tax base isn’t strong enough (and our budget is not large enough) to throw around the kind of incentives necessary to attract corporate giants (like it or not). Third, we just don’t have enough demonstrated success. Warren Buffett likens life to a snowball, and economic development is very much the same; small wins lead to medium-sized wins, which lead to big wins.
One or two major relocations make it easier for other large companies to rationalize Jacksonville. We just saw this take place with Amazon’s decision to locate two distribution centers in Jacksonville. Inquiries for large blocks of industrial space have picked up as a result of that decision. Amazon has put Jacksonville in the conversation for distribution and logistics. The hope is that we can create similar momentum on the corporate office side.
As wins pile up, the city will become more and more vibrant, quietly but surely shedding its small-town image for something a little more cosmopolitan. Something with a greater variety of options for employees with varying tastes and preferences. Labor availability will gradually improve as more people move to the area, the tax base will increase, availability of incentives will improve, the airport will get more routes and more nonstop flights. Suddenly the city will find itself as a place people want to be. And the snowball rolls on…
So, what does this mean for commercial real estate in Jacksonville? Surveying the landscape, there are several game-changing real estate projects under construction or on the drawing boards: Lot J/Shipyards, Berkman II, The District, Laura Street Trio and now the Jacksonville Landing. The developers of these projects have secured (or will be seeking) incentives of some kind to help make their projects viable. These development incentive packages are usually structured around projected increases in tax revenue. While valuable to developers, these types of incentives don’t fundamentally rebalance the supply/demand equation. Rather, they help offset costs so that developers can build what would otherwise be impossible, given prevailing market rental rates for real estate. The higher rents needed to justify market rate construction are indicative of robust sales volume (i.e., demand) that does not quite exist today.
As opposed to relying on the free market, using real estate specific incentives indiscriminately can have the unintended consequence of following politics to a place no one really wants to be. The worst-case scenario is to end up with a completed development with a lot of political goodwill and lackluster buy-in from the market. Development that is pushed too soon, or for the wrong reasons, can result in a lukewarm reception — which kills momentum and stifles future interest in an area. But when used wisely, these incentives can be valuable tools for redeveloping blighted or tainted areas of a community that might otherwise be the last areas targeted for development. Developers will gravitate toward the easiest sites first, not because they are lazy but because that is a more efficient way to deploy capital – speedily and with greater certainty.
While project-specific incentives have their place, the best way to fundamentally transform all of Jacksonville and spark investment in the area’s real estate is through investments in those who invest in people – the corporations that generate the value by which jobs are created, homes are built, and skylines (or riverfronts) are shaped. JAXUSA Partnership is Jacksonville’s ambassador to the outside world. Their staff does a fantastic job marketing Jacksonville to outside companies.
We should take a lesson from Amazon’s recent change of course regarding HQ2 in Long Island City, and refuse to subvert our officials’ efforts with claims of “corporate welfare.” Give the job creators an incentive to come to Jacksonville to create jobs. Be aggressive in pursuing companies that will create long-term value. Win the small ones first and start the snowball rolling. Let the free market decide which sites should be developed first. And watch Downtown Jacksonville’s commercial real estate landscape slowly, but surely, come to life.