SOUTHEAST SNAPSHOT, APRIL 2008

Orlando Office Market

The Orlando market is in a stable position. The fourth quarter of last year showed a net negative absorption of 70,923 square feet and vacancy rose slightly to 9.4 percent, but this is on top of net positive increases of 187,000 square feet, 156,000 square feet and 147,000 square feet during the most recent three quarters. Therefore, a slow down is not unexpected. Also, vacancies for the prior three quarters showed a 9.2 percent, 8.7 percent and 8.3 percent rate. Though the rate rose by only 1 percent during the course of the year, considering what has happened in the residential land and housing market, it was an excellent year.

Class A office space had four consecutive positive quarters in last year, while Class B and Class C office space each had negative growth in three of the last four quarters. This makes sense, if you consider that many support services use Class B and C space and work with the residential market has been negatively affected by the downturn. These same businesses (typically small businesses that have a few employees) are downsizing to their homes.

Since 2004, absorption and vacancy rates have steadily improved in virtually every submarket in the Orlando area. The differences are that some of the submarkets started in the high or mid-teen rates and some started in the single-digit rates. This speaks to the overall economic strength of the area and its ability to grow the employment base. Of 11 random market surveys, including the top three highest populated metro areas in the U.S., Orlando ranked first in office employment growth for the past 5 years. More specifically, the strong low vacancy submarkets of 6 percent and under are Altamonte Springs, Maitland, Sanford, West University, West Colonial, South Orange and Tourist Corridor. The weakest high vacancy submarkets of 11 percent and higher are the 436 Corridor, Casselberry, Longwood, Orlando Central Park, University and University Research.

Class A rental rates are holding fairly well, ranging from $22 to $36 per square foot and averaging $25 per square foot. Tenant Improvement Allowances have become pretty aggressive incentives, going as high as $30 per square foot and probably averaging closer to $20 per square foot. Some of the largest lease signings include the 59,551-square-foot lease signed by Embarq at Southpointe Executive Center in the Maitland Center market; the 57,300-square-foot deal signed by Inverness Medical Innovations at Reserve @ Maitland Center – Building 200 in the Maitland Center market; and the 53,000-square-foot lease signed by HF Management Services at Northpoint OffiCenter in the Lake Mary market.

The office sales market was up 20 percent in 2007 versus 2006 in total monetary volume and averaged $169 per square foot, which was a 15 percent increase versus 2006. However, new building deliveries have dramatically decreased during the fourth quarter with only five coming on as compared to the average of 23 per quarter for the previous three quarters. Of particular note is Liberty Property Trust’s plan to build Summit Park III, a seven-story office complex in Maitland with 210,000 square feet of rentable space. This project is expected to cost $50 million and will be a “gold” level LEED-certified building. “The Maitland area north of Orlando is the one local submarket that has a good chance of absorbing more office space in the near term, ” says Stephen Whitley, Liberty’s senior vice president/city manager. Of the top eight building sales last year, four were in the Maitland submarket and averaged $38 million.

Another major project is the World Trade Center Orlando, planned by Skyrise Development Group, north of the downtown area. The project is expected to start construction sometime mid-year and will consist of two LEED-certified high-rise buildings. The two towers, 25 stories and 28 stories, respectively, total 500,000 square feet. The project will be mixed-use and have Class A offices.

Additionally, major construction is happening in the Altamonte Springs, Tourist Center, Winter Park, Downtown and Lake Mary submarkets. All five areas are considered premier locations.

The Orlando market is holding its own despite all the pressure from the slowdown in the residential market. As long as the population continues to grow at a steady pace and the office market does not go into a building frenzy, the market should be able to hold its own.

— Paul Partyka is the managing partner for Orlando, Florida-based NAI Realvest.

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.