Signs of life returning to Orlando’s Central Business District are being picked up by office real estate players who are eager to sign more deals in what otherwise would be a prime urban real estate market, had it not been for the pandemic.
“We had a reset last year because of COVID, but generally speaking companies are moving to this area…and we’re growing” Steve Garrity, a senior vice resident at Highwoods Properties, said at NAOIP’s Speaker Series: Office Market Update event Thursday.
The company owns approximately 28 million square feet of commercial space in eight different markets in the Southeast.
In Orlando, Highwoods owns seven office buildings totaling roughly 1.7 million square feet of Class A office space.
“What happened in 2019, as we all know, the economy was terrific…Some of our customers wanted to expand and pay for their own improvements. The vacancy rate at the time was under 10%, rental rates were going up and concessions were going down,” Garrity said. “It just felt really good in downtown Orlando.”
Then the pandemic hit. Garrity said physical occupancy at its properties fell to about 30%.
In response, Highwoods activated a business continuity plan and focused on keeping buildings open. The firm kept tenants informed on the Paycheck Protection Program and other forms of reimbursement and rent relief, while also updating buildings with improved air filters and touchless entry technology.
As part of that effort, the firm completed renovating the 16-story Bank of America Plaza tower at 300 S. Orange Ave., across from the Grand Bohemian Hotel Orlando, last year. In another one of its buildings, Eola Centre, which is 168,000-square-foot, 14-story office tower across from Lake Eola Park, occupancy was able to rise from 77% before the pandemic to 92% today.
Looking back, Garrity said Highwoods was able to increase tenant occupancy rates by 2%, without collecting any debt, and increased its revenue.
“It’s great to see that. I feel like we’re back in 2019,” he said. “Sublease and vacancy certainly is an issue right now…but I feel like that should subside in the near future, based on the fact we were able to do 100,000 square feet of deals [in the market] in 2020.”
Office vacancy rates in Orlando’s CBD are hovering between roughly 11% to nearly 16%, according to reports by Colliers, CBRE and JLL.
Withstanding that fact, panelists agreed there are a number of indicators taking place that signal the Orlando office market is returning to pre-pandemic levels.
At the panel Skipper Peek, a senior vice president at Tavistock Development Company said he believes on a macro level that the office market is “a little bit of a net loser,” but those up-and-coming tech-friendly cities like Orlando, Tampa and Miami are positioned to come out on top.
“If you look at [CBRE] data, about 50% [of the overall workforce] is working from home and another 20% is hybrid so that’s 70% of people that you’re trying to drag back and I can tell you anecdotally there are a lot of people who love the changes in their lifestyle,” he said. “But I do think Florida is going to be a winner, in terms of how things get rewired.”
The panelist agreed there are signs of a recovery, albeit a slow one.
Around the beginning of the pandemic, the Orlando MSA unemployment level rose substantially, up to 22.6%, but has since fallen to 5.9%, marking the most significant gains in the state, according to a Colliers second-quarter office report. In addition, office-using employment rose during the quarter, adding over 15,000 jobs.
Data tracking how much in revenue city-owned parking garages are collecting show a sharp decline compared to the year before the pandemic, though that number is leveling off.
Records obtained by GrowthSpotter show the City of Orlando is still not yet matching the amount of money it collected at its parking garages during the 2018/2019 fiscal year.
Between ten of its garages, the city collected $17.09 million during the 2018/2019 fiscal year. That number dipped to $13.57 million in the consecutive year and dipped again at a much slighter level to $12.85 million during the most recent fiscal year, which closed Sept. 30.
In some cases there are signs of an increasing amount of revenue, for instance at its Central Boulevard Garage in downtown, the city collected $2.99 million during the 2018/2019 fiscal year. That number decreased to about $2 million in the consecutive year but rose to $2.3 million during the most recent fiscal year.
CBRE’s Chris Sproles, another panelist, said he’s had two experiences this year where two companies are going for the same space.
“The landlord or sub-landlord had to pick one, and so that’s typically a sign of a market that’s getting better,” Sproles said. “We’re seeing demand that’s sometimes surprising and then also newer companies that are looking at Orlando or expanding their presence here.”
One of the country’s largest insurance brokerage firms has a commitment to occupy 44,000 square feet of space inside the CNL Center I building at 450 S. Orange Ave., in downtown Orlando. AssuredPartners, a company started in 2011 in Lake Mary, cited Orlando’s SunRail commuter train, multi-destination airport and being walking distance to the Dr. Phillips Center for the Performing Arts and Amway Center as its reason to stay in Florida, according to a news release.
Sonesta International Hotels Corp., a Newton, Massachusetts-based private hotel company, is taking 18,000 square feet at 315 East Robinson Street in the Landmark Center One building, in downtown.
At the close of the third quarter, Electronic Arts’ new downtown office in Creative Village was the only active new-build construction project in the market. The video-game maker’s planned 175,940-square-foot office is slated to open by the end of the first quarter of 2022. Also next year, Ustler Development and The Allen Morris Company plan to break ground on a new 12-story office building in Creative Village. The $97 million project is being designed for a post-COVID-19 environment, with touchless access controls, enhanced HVAC filtration, LEED certification and WELL Building design elements. The partners are working with JLL for the initial pre-leasing.
Another project on the horizon is the renovation of the former AT&T office building at 500 N. Orange Ave. that’s being handled by the building’s owners West Second Street Associates. WSSA plans to fully occupy the 5-story building with an unnamed agency of the federal government. The deal was the largest office lease in the Orlando market during the third quarter 2020, according to a JLL report.
Downtown office investment has also seen some activity take place in the last couple of months.
In October, FoxRock Properties paid $9.79 million for the historic Metcalf building at 100 S. Orange Avenue. The 10-story office building was 80% leased, at the time of the sale, with one office space and ground-level retail available.
The Boston, Massachusetts-area company is also under contract to purchase and occupy downtown’s Two South Orange Building at 2 S. Orange Ave., according to a source close to the deal.
Have a tip about Central Florida development? Contact me at arabines@GrowthSpotter.com or (407) 491-3357, or tweet me at @amanda_rabines. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.