SOUTHEAST SNAPSHOT, NOVEMBER 2005

Orlando Office Market

Steven Ekovich First Vice President Marcus & Millichap

Orlando employers are expected to add 43,400 positions this year, a 4.4 percent increase from last year, after adding 27,200 jobs in the first half of the year. Employment in office-using industries is on track to increase 5.5 percent this year, a net gain of 15,400 positions last year, 8,200 of which were added by mid-year. Most of these are in the professional and business services sector, which will add 11,800 jobs, numbers projected to boost the office market.

Also boding well for the local office market, completions are projected at 674,000 square feet of office space this year, up from last year but well off the pace set from 1998 through 2001, when an average of more than 2 million square feet was completed annually. Downtown can expect to see major projects coming on line this year, including CNL Center II, located adjacent to City Hall. The Premier Trade Plaza also will bring 379,000 square feet downtown in late 2006 as office condominiums.

Despite this level of construction, owners can anticipate both declining vacancy and rising asking rents. Orlando office vacancy has fallen 60 basis points so far this year to 14.4 percent and is on pace to end this year at 13.7 percent. Downtown vacancy remains low at 11.9 percent compared to 12.3 percent a year ago. Absorption of office space during the past 12 months has been concentrated in the south Orlando and Casselberry submarkets, where vacancy has plummeted by as much as 500 basis points to 11.8 percent and 13.4 percent, respectively, and is expected to drop to the 10.5 percent to 11.5 percent range by year's end. South Orlando's convenient location near the central business district and airport is attracting major employers to such complexes as Southpark Center, where a 130,000-square-foot speculative building was taken up by Starwood prior to its completion at the end of last year.

Asking rents are up 0.7 percent in the first half of the year and are projected to grow 1.4 percent to $19.60 per square foot by the end of this year. Effective rents will reach $16.19 by year end, a 2.3 percent annual increase. Downtown property owners have raised asking rents by 2.4 percent during the past 12 months to $19.96 and raised effective rents 2.8 percent. In south Orlando, owners have raised asking rents by 1.8 percent to $19.64, achieving a 3.2 percent effective rent growth.

With rent and vacancy improving, median prices during the past 12 months rose 10.5 percent to $123 per square foot. Volume did not increase dramatically as $732 million in properties traded compared to $711 million during the previous period. Downtown accounted for the largest share of volume with 2 million square feet trading hands for a total value of $270 million, at a median price of $158 per square foot. Finally, volume in south Orlando jumped to $115 million in the last 12 months compared to $42 million in the previous period, while the median price rose 44 percent to $118 per square foot.

— Steven Ekovich is a first vice president of Marcus & Millichap and regional manager of the firm's Tampa, Orlando and Jacksonville offices.


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