One of the most apparent trends in office development within metro Orlando, Florida, right now is a temporary flight away from speculative building and toward the relative safety of build-to-suit construction, according to Lisa DeVore, research analyst with Trammell Crow Company. "This trend is a result of adverse market conditions," notes DeVore. "Real estate appears to be, at least for now, a defensive investment in today's bear stock market, but the Orlando market is already fairly replete with inventory." Net absorption has fallen well below levels achieved in previous years and construction starts have declined noticeably. Investment activity has also been considerably slower as a result of flattening rental rates, softening demand and an ample supply of both available space and sublets.

The University area is preparing for a surge of growth, buoyed by the University of Central Florida, which is preparing to expand, and the recent growth of both military and civilian defense and simulation contractors located within adjacent office parks. Behind tourism, technology is the area's second greatest employer, and many of these jobs are clustered within the University area. A new interchange that will connect Narcoosee Road to the Beeline Expressway will also serve to open up the east side of town and allow for immediate accessibility to the Airport area, another sector that is experiencing great demand and that is expected to enjoy strong future growth.

"Market observers should keep an eye on the Airport and University areas, as the east side of town is primed for a surge of future growth," DeVore notes. "Tenants, however, should keep a close eye on the Southwest area as a ready supply of vacant space offers great opportunity to negotiate below market rental rates and obtain greater leasing incentives."

While much of the market's recent office development has taken place in the Lake Mary and Southwest areas, it seems as though new growth will soon stretch eastward, just south of the Airport area. The Southeast quadrant of Orlando, which currently has 12,000 acres on which to build, is expected to account for one-third of Orlando's growth over the next 20 years. An ample supply of developable land, increased residential demand, the expansion of Orlando International Airport (96 new gates) and an improved transportation network have provided the catalyst for growth. In addition, several developments such as Moss Park and Eagle Creek will serve to accommodate this demand. Eagle Creek, currently in the planning stage, is a mixed-use project in Southeast Orlando. Eagle Creek Development Corporation, a wholly-owned subsidiary of Emerson International, Inc., is developing the project.

The most active developers in Orlando's office market are not new to the area, but are consistent, dominant players, says DeVore. "Crescent Resources and Colonial Properties Trust remain very active in the Lake Mary area, as does Pizzuti Development." Duke Realty is currently buying in the Southwest area. The company is purchasing a 26-acre tract of land located at the intersection of Interstate 4 and Conroy Road, adjacent to the highly anticipated Mall at Millenia. "The first phase of the purchase has closed while the second phase remains under contract. Development plans have not yet been announced and Duke may have purchased the land as a buy and hold investment," says DeVore.

The current Class A rental rate in Orlando's office market is $20.81 per square foot (psf), with an average downtown rate of $24.73 psf. The average range for Class A properties is typically between $18.50 and $25 psf, although rates fluctuate by submarket. The highest Class A rates can be found downtown and in the Airport, Maitland and Southwest areas.

Tenant movement has been consistent over the past year, but many tenants have been downsizing. No single tenant has absorbed a dominant percentage of the market's leasing activity, although several large deals have closed. FiServ leased the 200,000-square-foot Colonial Center 600 building, but the net affect on the market's absorption is zero as the building is currently under construction and will not deliver until summer 2002. The most dominant project with regard to procuring new activity has been the Gran Park development, which just signed a 92,000-square-foot lease with Fairfield Communities, among other key deals. Florida Power has leased the entire 108,500-square-foot NorthPoint Center III building in Lake Mary, which positively impacted the market's absorption when the building delivered during the fourth quarter of 2001. Most recently, the Orlando Culinary Academy signed a 15-year, 52,750-square-foot lease in the Lincoln Park Building in south Orlando. This brings the building, which was empty for most of 2001, to a 66 percent occupancy level.

"The Orlando market remains fairly well in balance despite a rising unemployment rate and a still uncertain national economic environment," says DeVore. "According to a newly released report by the U.S. Department of Labor, metro Orlando ranks fourth among all regions in the nation in terms of new job growth."

Lisa M. DeVore serves as research analyst with Trammell Crow Company.


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