CITY HIGHLIGHT, JULY 2007

ORLANDO CITY HIGHLIGHTS
John Crossman, Kenneth Krasnow and Kelly Chamberlain

Orlando Retail Market

Fueled by ongoing population growth and positive development trends, the Orlando region’s retail real estate market continues to see strong performances. The area’s rental rates for inline retail space and pad site prices are in the top 10 among major national markets and Central Florida continues to see one of the nation’s most dramatic population increases.

 Major residential development in downtown Orlando is creating additional demand for high-end retail, and beltway and suburban areas are continuing to see strong growth, with a number of noteworthy projects in the development pipeline. To the southeast, Lake Nona, a master-planned community, is making an impact with plans for a medical campus that would include the University of Central Florida and the Burnham Institute, a medical research facility. The western suburbs are seeing a number of developments coming online, including Winter Garden Village at Fowler Grove, a $1.15 million open-air development that will feature a mix of upscale home, fashion and specialty national retailers, restaurants and a movie theater.

One of the regions most booming submarkets lies just to the northwest, where the 26,000-acre The Villages, the country’s largest master-planned senior community, continues to dominate the commercial real estate landscape. The addition of Buffalo Ridge, a 1.3 million-square-foot open-air mixed-use development designed to interface seamlessly with The Villages’ internal network of roads and access points, will complement the community’s existing town centers, Spanish Springs Town Square and Lake Sumter Landing Market Square. A third town center, Brownwood, is also being planned. Phase I of the project, which includes a Wal-Mart Supercenter, is operational and Phase II’s tenant lineup is slated to be announced in the near future.

The popularity of town centers and other open-air, mixed-use spaces continues to grow as the diverse options, pleasant surroundings and sense of community provides a compelling combination of convenience, resources and aesthetics that appeals to all demographics. A mix of ground-floor retail with office space, integrated residential components and a blend of high-end retail, dining and entertainment options is a formula that is common in regional projects.

Throughout the region, major leases are being signed, with prominent national and international retailers like Kohl’s and IKEA entering the market. IKEA’s new 310,000-square-foot Orlando location adjacent to the Mall at Millenia will be the region’s largest freestanding store.

With its strong, diverse economy and rapidly growing consumer base, however, the future looks bright for the booming Orlando retail market.

— John M. Crossman is president of Crossman & Company in Central Florida.

Orlando Multifamily Market

In 2006, the Greater Orlando apartment market began a shift away from condominium conversions back to an income-producing haven for institutions, advisors and private buyers. The amount of multifamily transactions purchased for rental income in 2006 increased in contrast to 2005, when sales to converters represented the majority of transactions and placed Orlando as one of the nation’s leaders in condominium conversions. Orlando is still experiencing impressive sales volume relative to previous years, reflecting the continued attraction to the area from many different investor types.  

The Orlando MSA added more than 200,300 jobs during the 5-year period ending 2006 (an average of more than 40,000 jobs per year), representing the largest job growth among all metro areas in Florida and one of the largest in the nation. The area not only experienced growth in the tourism industry, but the Orlando MSA is seeing a job boom in such diverse sectors as the technology industry, including growth in simulation, computer modeling, photonics, software development, entertainment technology, biotechnology and aerospace industries. Additionally, the area’s unemployment rate of only 2.8 percent at year-end 2006 was the second lowest among the six major metro areas in Florida. 

The southern portion of the Orlando MSA is receiving significant attention from multifamily developers due to the growing employment opportunities in the area.  In one of the biggest deals in Florida in 2006, the Burnham Institute received approval from Orlando for a $367 million package to bring the nonprofit, biomedical research institute to the southeastern Orlando region.  The organization, which focuses on causes of diseases, is building a 175,000-square-foot facility that will create more than 300 high-wage jobs and is expected to produce a substantial biomedical cluster in the region.  Additionally, southwestern Orlando is gaining interest from apartment developers, especially in the areas surrounding the Mall at Millenia and near the major theme parks, due to substantial commercial development in the region.

Apartment deliveries in Greater Orlando totaled approximately 3,500 units in 2006, representing a 37 percent decline from 2005 and a 56 percent drop from the 2001 to 2005 average. Rental deliveries in 2007 are projected to be less than 2006 due to high construction and insurance costs that limit the new rental product.  The drop in new deliveries and continued job growth, combined with more than 25,000 units converted to condominiums since 2003, create a positive environment for existing multifamily properties.  

Occupancy dipped slightly by the end of 2006 to 95.1 percent, but is still at a historically high level relative to the past decade. Greater Orlando experienced healthy rent growth of 6.3 percent between fourth quarter 2005 and fourth quarter 2006. With a significant number of units removed from the rental inventory, as well as decreased apartment development and positive economic growth, rent growth and occupancy should remain at its strong level in the coming year.       

— Kenneth M. Krasnow is chief operating officer in the Boca Raton, Florida, office of Apartment Realty Advisors.

Orlando Industrial Market

Orlando continues to be one of the most desirable metro areas in the Southeast. Central Florida’s economy is fueled by its strong job growth and moderate cost of living. Orlando’s industrial market, which consists of 1,236 buildings totaling more than 82 million square feet of rentable space, remains tight, recording a 5.8 percent vacancy rate in the first quarter of 2007. Despite a slight increase of 59 basis points from the previous quarter, Orlando’s low vacancies continue to be the driving factor in the markets rising rental rates. At $6.21 per square foot, Orlando’s average rental rate has increased an impressive 28.3 percent since the first quarter of 2004. In the first quarter of 2007, a total of 467,804 square feet of new space was delivered and close to 975,000 square feet of lease transactions were signed.

Within the industrial market, the manufacturing segment reported a 12 percent increase in rental rates since the first quarter of 2006, from $5.40 per square foot to $6.04 per square foot. Flex rental rates came in at $9.74 per square foot, which is an 8.2 percent increase from a year ago. The Central Orlando submarket posted the largest increase in flex rates in a 12-month span, escalating 45 percent to $13 per square foot. Another significant increase in flex rental rates was in the Airport/Southeast submarket, which was up 12.3 percent from $9.40 per square foot to $10.56 per square foot. On the flip side, the Southwest submarket’s flex rates plummeted by almost 10 percent falling to $12.03 per square foot since the first quarter of 2006.

The two submarkets with the highest overall rental rate increases since the first quarter of 2006 were Longwood/Lake Mary/Sanford and Osceola. Longwood/ Lake Mary/ Sanford ended up with a near 19 percent increase to $7.67 per square foot and Osceola reported an increase of 21 percent from $5.68 per square foot to $6.86 per square foot.

In the first quarter of 2007, Orlando’s industrial sales market recorded the highest average price per square foot sales in Florida at $83.47. This is a 41 percent increase from the first quarter of 2006. Orlando’s market remains one of the strongest in the Southeast ranking third with 16 transactions this quarter behind Tampa and South Florida. The 16 sales in the first quarter of 2007 totaled just less than $160 million and approximately 1.91 million square feet. A year ago Orlando’s industrial market reported a total of 11 sales totaling $36.1 million. This increase of $123.9 million indicates an industrial market that’s thriving with investor activity.

The highest level of sales occurred in the Airport/Southeast submarket with just over 600,000 square feet totaling $51 million. The largest being the Daimler Chrysler Parts Warehouse at $44 million. The second largest sale was in the Northwest submarket for $14 million totaling 215,000 square feet (see below for details).

Orlando’s total number of industrial sales continues to outpace most metropolitan areas in the Southeast and reports an average capitalization rate of 6.3 percent, which is well below the national average of 7.1 percent. Orlando’s industrial sales market is expected to continue its strong sales activity through the remainder of 2007.

A total of 467,804 square feet of new industrial space was delivered in the first quarter of 2007 (including industrial condominiums). Another 2.3 million square feet is expected to be delivered by the end of 2007 and an additional 6.4 million square feet is in the planning stages. With so many potential projects on the horizon, Orlando’s industrial market appears to have a strong pipeline of product for the future.

As in previous quarters, the submarket with the most development activity is the Airport/Southeast, which has more than 2.62 million square feet in its construction pipeline. Some of the projects include the new 296,100 square foot Liberty Park at AIPO buildings 1 & 2, Lee Vista Commons 1-3 with 124,793 square feet, the Airport Distribution Center buildings 10 & 11 with 126,000 square feet and the Beachline Commerce Park buildings 1-3 totaling 115,600 square feet.

The Southwest submarket has several new industrial developments scheduled to be delivered in 2007. McDonald Development Group is developing Crownpoint V & VI, which will total 251,054 square feet. Eastgroup is set to deliver Park Court, which is 92,075 square feet of new office/warehouse space.

Lastly, construction began this March on the Ocoee Business Park in the Northwest submarket. The 60,000-square-foot office/warehouse building is located at 501 and 503 Ocoee Business Parkway and is expected to be complete by the third quarter of 2007.

The Orlando leasing activity for the first quarter of 2007 was slow, which contributed to a slight increase in average direct vacancy from 5.2 percent to 5.8 percent. Out of all of the submarkets, Osceola and 33rd Street posted the lowest vacancy rates at 2.3 percent and 4.3 percent, respectively. The majority of the submarkets reported decreases in their vacancies since the first quarter of 2006, which signifies that Orlando’s industrial market remains strong. Concerning flex space, the largest increases in direct vacancy from this time last year was in the following submarkets: 33rd Street, Longwood/Lake Mary/Sanford, North Central and Orlando Central Park.

The highest increases in vacancy from the last quarter of 2006 are in the Northwest, Central Orlando and Silver Star submarkets. Within the Northwest submarket, the Superior Commerce Park delivered 45,742 square feet of space, which resulted in a 48 percent increase in vacancy from 5.2 to 6.9 percent in one quarter. More than 263,000 square feet of space was delivered in the Central Orlando submarket, which caused the vacancy to shift from 5.2 percent last quarter to 6.9 percent this quarter, an increase of 33 percent.

— Kelly A. Chamberlain is director of research & marketing with the Orlando, Florida, office of GVA Advantis.


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