CITY HIGHLIGHT, JULY 2006

ORLANDO CITY HIGHLIGHTS
John M. Crossman, Robert Blackwell, Shelton D. Granade, Matthew T. McKeever

Orlando Retail Market

Population growth continues to soar in metropolitan Orlando with a current population of more than 1.9 million. This is an increase of 13.5 percent since 2000 and there are no signs of the growth slowing down in the near future.

The biggest drivers to the Central Florida residential markets are the Baby Boomers, Generation Xers and Hispanic population, which all continually contribute to the area’s strong retail growth. Especially as the Baby Boomers turn 60 this year, there will be a significant spike in the Florida population, and, specifically, the metro Orlando population. They are now younger and more active when they migrate to Florida than their retiree predecessors, and their spending patterns show it. The key to retail is volume and as long as the population continues to grow, the demand for retail space will only get stronger.

As a whole, Orlando’s retail market remains strong. The hottest submarket continues to be the Millennia area with a more than 99 percent occupancy rate and asking rental rates of $33, which is particularly amazing when considering that this market did not exist 3 years ago. Average asking market rental rates are at a record number, surpassing $20 per square foot and occupancy is a robust 95 percent. Metro Orlando should expect to see approximately 1.5 million square feet of space delivered within the next 12 to 18 months.

Central Florida has been at the forefront of the open-air movement, and is home to many of the leading town center, lifestyle center, and mixed-use developments in the country. Some of the most significant examples include The Loop, Baldwin Park, The Marketplace at Town Center, Uptown at Altamonte and Colonial Town Park.

Other projects underway include the Sembler’s Winter Garden Village at Fowler Groves, a 175-acre, 1.2 million-square-foot open-air project, which is scheduled to begin this year. Also near completion is Trammell Crow’s Park Place, a 54,000-square-foot mixed-use project on Park Avenue in Winter Park.

Another emerging trend in Orlando is the incredible growth in downtown housing and retail projects. By 2008, an estimated 540,000 square feet of retail space will be added to the Downtown Orlando market. Nearly 7,300 multifamily/condo residences will be added to the downtown core. Among the 50 current and proposed developments is Cameron Kuhn’s The Plaza on Orange Avenue, a mixed-use redevelopment that will include a 12-screen AmStar theater and 53,000 square feet of retail space. Currently under construction, this project is scheduled to be completed by late this year. 

One of the hottest area’s in Orlando is the Lake Nona area on the southeast side, which has ramped up commercial development and is seeing thousands of new residential units in the pipeline.

In addition, a number of developments along Sand Lake Road, totaling 625,629 square feet, have been approved to start construction during the next few years.

Central Florida’s continued growth and successful retail markets will rely on steady population growth. As long as these numbers remain strong, the incredible development will continue.

— John M. Crossman, CCIM, is managing director at Orlando, Florida-based Crossman & Company.

Orlando Industrial Market

Through the end of the first quarter of this year, all economic indicators continue to show a strong, vibrant industrial market. Vacancy rates continue to shrink, absorption is positive and rental rates are trending upwards.

Currently there exists a total of 145.8 million square feet of industrial space within Orlando, which includes 9.9 million square feet of inventory or a 6.8 percent vacancy rate. Of the total industrial square feet, 81 percent is warehouse space with a 6.5 percent vacancy rate and 19 percent is flex space with an 8.2 percent vacancy rate.

The trend for vacancy in the industrial market during the past four quarters continues to decrease from 7.2 percent in the second quarter of last year to 6.8 percent currently.

Absorption was positive in every quarter of the same period. An actual absorption of 649,337 square feet for the first quarter of this year and a total absorption of 2.8 million square feet during the last four quarters demonstrates strong demand for industrial space.

Deliveries and construction are strong and consistent. During the first quarter of 2006, there were 9 buildings completed for a total of 326,051 square feet. During the past four quarters, 59 buildings were delivered to the market totaling 2.1 million square feet of new industrial space.

Economic pressure, created by lower vacancy rates and increasing construction costs, has pushed rental rates higher. The average rental rate for warehouse space increased from $5.54 per square foot in the fourth quarter of 2005 to $5.60 per square foot in the first quarter of 2006. During the same period, flex space increased from $10.25 per square foot to $10.81 per square foot.

As the inventory of available industrial land continues to shrink, users and developers have been forced to look beyond the traditional borders of metro Orlando. One market area that has seen a significant amount of activity during the past year is southwestern Osceola County and Polk County.

This area was once considered the “hinterlands” of industrial development is now attractive to developers and tenants. In Poinciana, Poinciana Office and Industrial Park has experienced strong contract activity during the past year with more than 100 acres sold during that time period and 300 acres currently under contract to owner users and developers.

And CSX Rail has recently selected a 1,250-acre industrial site in Winter Haven for an integrated logistics center. Rezoning and changes in land-use restrictions on an initial 300 acres has begun with the balance to be developed under a planned DRI. The site will eventually include 3 million square feet of warehouse space and 500,000 square feet of office space.  

First Industrial Realty Trust has two industrial developments underway in Polk County: the 153-acre First Park at Haines City and the 120-acre First Park at Bridgewater. There will be as much as 3 million square feet of bulk distribution or build-to-suit warehouse space available between the two parks.

The forecast for metro Orlando shows strong, consistent population growth. This growth will create demand for more housing and consequential commercial development to support this growth. All the indicators point to a continuation of strong demand for industrial space.

— Robert Blackwell is a principal with Orlando, Florida-based NAI Realvest.

Orlando Multifamily Market

Fundamentals in the Orlando apartment market are among the strongest in the country, and the metropolitan statistical area (MSA) could see rent increases of more than 10 percent this year. Both occupancy and effective rents rose in the first quarter of this year, according to M/PF Research. Gross occupancy in Orlando increased 0.8 points from a year ago to 97.6 percent. During that same period, effective monthly rents rose 8.4 percent to an average of $843 ($0.89 per square foot) per month. 

The local rental market benefited from the conversion of more than 18,000 units to condominiums last year. The MSA’s apartment inventory shrank to about 137,565 units as of last March.            

State-leading job growth and impressive population gains have also been key factors in the market’s stellar performance. Orlando created more jobs than any other Florida MSA from March 2005 to March 2006, and preliminary data from the Bureau of Labor Statistics indicated that 50,800 jobs were generated during the year-ending February 2006. In addition, more than 1,000 people move to Florida each day, which continues to create tremendous demand for rental housing. 

Despite overwhelming demand, only 1,858 new units are expected to complete construction through the first quarter of 2007. Land zoned for garden-style apartments has become increasingly difficult to find, and community leaders are reluctant to re-zone due to concerns regarding overcrowding at schools and on highways. With only a modest supply of new units coming online, rents and occupancy should remain high in the foreseeable future.

Buyer interest in rental communities in Orlando remains extremely strong. Income buyers, both private and institutional, are aggressively seeking properties in Orlando. The MSA saw record sales activity of more than $3.5 billion last year, and has registered more than $1 billion in local sales through May 2006.

The outlook for Orlando continues to be very positive with the only potential challenge being the recent spike in insurance. In general, insurance expenses for apartment communities in Florida have increased significantly. Though many specialists expect the increase to be temporary pending the outcome of the upcoming hurricane season, buyers and owners are seeing sizable increases even in Orlando, which is more inland than the coastal areas typically affected by the storms. Despite the uncertainty on the insurance front, the favorable supply/demand ratio should help keep the market fundamentally strong, which is likely to attract ongoing interest from buyers throughout this year.

— Shelton D. Granade is with the Central Florida Multihousing Group in CB Richard Ellis’ Orlando office.

Orlando Office Market

Premiere Trade Plaza is a mixed-use property set to open in October in Orlando, Florida.

The overall vacancy rate in the Orlando MSA is currently at 11.2 percent — the lowest level in 7 years — and rental rates are at $20.51 per square foot — the highest level on record. Now, a wave of new office development is underway in every major submarket.

In south Orlando, Flagler Development Company is developing SouthPark, which will include approximately 2.9 million square feet of office and flex space at build-out. In Lake Mary, Colonial Properties Trust is underway on Colonial TownPark, which will include more than 650,000 square feet when Colonial Center 300 is completed this month. And the Central Florida Research Park in east Orlando is seeing activity with The Adler Group’s Concourse at Quadrangle and Taurus Investment Group’s Challenger South. The projects will add more than 550,000 square feet of office and flex space to the park.

In addition, Duke Realty Corporation, Crescent Resources, LLC, and Lincoln Property Company have significant land holdings across the MSA for future development.

The central business district, the epicenter of the office market, is undergoing a massive transformation. Traditional office high-rises are being replaced by mixed-use projects, with residential, retail, and office space, to allow for a 24-hour live, work and play environment. There are a number of significant projects under construction or planned for downtown. Kuhn Development’s Premiere Trade Plaza, which will include a 12-screen movie theatre, 310 residential condominiums, 394,000 square feet of office condominium space, 53,000 square feet of retail space, and a 1,429 car parking garage, is scheduled to open in October. Lincoln Property Company and Dynetech Corporation recently began work on Dynetech Centre, a 32-story mixed-use building with 164 multifamily units, 7,250 square feet of retail space and 150,000 square feet of office space. Dynetech Corporation will occupy 62,000 square feet of space. Also, Highwoods Properties’ Capital Plaza III, originally proposed as a traditional office building, has been revised to include 121 residential condominium units, 180,000 square feet of office space, a 150-room Hampton Inn & Suites and 15,000 square feet of retail space   And Palm Beach Land Trust’s 400 North Orange, a four-phase, four-building mixed-use development, will include 900,000 square feet of office space, 800,000 square feet of retail space, a 300-room hotel and approximately 80 residential units

Another relatively new factor affecting Orlando office development is the addition of office condominiums. Low interest rates and the desire to invest in real estate has allowed this market to flourish during the past several years. Once interest rates are pushed to a level where it is unjustifiable to purchase a condo unit, the spaces will be turned into lease opportunities.

The abundance of new space should push vacancy rates up and keep rental rates relatively flat in the short term. However, with the Orlando job market projected to increase by more than 23,000 workers per year through 2013, the influx of new office space will easily be absorbed.

— Matthew T. McKeever, SIOR, CCIM, is senior director in office brokerage services with Cushman & Wakefield’s Orlando, Florida, office.

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