While Mike Fess has delivered more than a dozen offices to the Orlando market over the past 15 years, none have been more challenging, or costly, than the two buildings that are under construction within UCF’s research park.
Fess, the managing principal of Equity Partners, started work on a single-story building totaling 68,703 square feet in February of 2022. The tenant, Astronics Test Systems, is expected to move into the space called Ingenuity One in the coming weeks.
He started work on the other office complex, Discovery Two, in September of 2022. That 58,703-square-foot building may not be complete until November.
“Normally it takes eight months to build these buildings,” he told GrowthSpotter. “It’s harder than ever. I’ve developed 15 buildings, and the two that we are doing right now are by far the hardest. Mainly because of delays in getting materials. It’s the supply chain issue. Doors are hard to get. Steel is hard to get. Glass.”
He ordered air conditioning units in September that were supposed to arrive in April. They won’t be here until August, delaying when modeling and simulation training company Cole Engineering Services can take over occupancy of the Discovery Two building.
With every delay, Fess incurs more costs. In turn, the end user will see higher rent rates.
“In general the buildings now cost about $40 (per square foot) more than before the pandemic,” Fess said. “That equates to $2.7 million (additional cost) for Ingenuity and $2.3 million for Discovery. …They are expensive to build so tenants have to be willing to pay a higher price to get a new building today.”
Fess is among only a few developers actively building office assets in the Orlando market. Only Unicorp National Developments and Tavistock Development Corporation have larger office projects under construction and those, too, will wrap up soon.
Unicorp has been building a nine-story, 300,000-square-foot office within the City Center at O-Town West in Dr. Phillips that will be used as the new global corporate headquarters for Marriott Vacations Worldwide Corporation.
Unicorp CEO and President Chuck Whittall told GrowthSpotter that the office is expected to open in September.
Meanwhile, Tavistock Development is putting the finishing touches on an eight-story, 278,917-square-foot office building at 13410 Veterans Way within the Lake Nona Town Center.
“The building is on track to be completed this summer,” Lismarie Gomez, communications manager with Tavistock Development said in an email. “We are working with several prospective tenants but have no leases to announce at this time.”
While these are the only large-scale office projects under construction, there are several in the development pipeline.
Lincoln Property Company just finished demolishing the former Ballroom at Church Street in downtown Orlando and will replace it with a 32-story mixed-use tower called The Edge. Designed by Baker Barrios, it will have 234 luxury apartments, 200,000 square feet of office space and a 10-story parking garage and some ground-floor retail in the lobby and an adjacent food hall. Lincoln has already pre-leased three floors of the new office space.
Kevin Quinn, the company’s vice president of development and construction, said that construction is expected to begin on the tower in the fourth quarter of this year.
Other projects are either on pause or have been canceled altogether.
Disney had planned to build a new 1.8 million-square-foot corporate campus at Lake Nona. The company bought the 58-acre site in 2021 for $46.4 million. Disney announced this week that it was pulling out of the project.
Disney Parks Chairman Josh D’Amaro attributed the project’s cancellation to “changing business conditions.”
“Given the considerable changes that have occurred since the announcement of this project, including new leadership and changing business conditions, we have decided not to move forward with construction of the campus. This was not an easy decision to make, but I believe it is the right one,” his message read.
Andy Slowick, director of land sales for Cushman & Wakefield, said there were likely economic reasons for the move, as well as the political climate.
“Disney is a massive organization, but Disney is not immune to the increase in construction costs,” Slowick said. “We’re seeing in the exceptional cost increases since they purchased the land that everyone’s facing. The construction cost increases over the last two years have been pretty dramatic historically. While they’re a very large organization, if you listen to their quarterly reports, they’re under some capital pressure and at some point you’ve got to make decisions on capital allocation as well.”
Meanwhile, Ustler Development is waiting for things to improve before moving forward on a plan to bring a 12-story office tower to parcel X in downtown Orlando’s Creative Village.
“It is planned and ready to go when the capital markets settle down, construction pricing comes back down to earth and the overall economy improves,” CEO Craig Ustler told GrowthSpotter.
Office leasing activity across the Orlando market has reached its slowest point since the pandemic, according to the most recent office report by Avison Young, which reflects the first quarter of 2023. With a 43.9% year-over-year decline in leasing activity, the first quarter experienced the softest quarterly traction in leasing volume since the 2008 recession, resulting in only 410,000-square-foot leased.
Meanwhile, office vacancies continue to rise. Sublease availability across the Orlando office market increased by 21.7% year-over-year during the first quarter, according to the report by Avison Young.
Submarkets representing the largest amount of sublease space are concentrated in suburban areas within University/Research (663,000 square feet (sf)), Southwest Orlando (526,000 sf), and Lake Mary/Heathrow (359,000 sf). The largest sublease availability added in the first quarter of 2023 was 93,358 sf at 1101 Greenwood Blvd. in Lake Mary, as Healthfirst offloaded floors three through five.
The office conditions are only exacerbated by unfavorable economic conditions, like the ones experienced by Fess.
That hasn’t stopped him from pursuing his next development project. However, he may wait a while before he starts construction.
“We are actively looking for another site to develop within the Central Florida Research Park,” he said.
UCF’s research park spans 1,027 acres just south of the college’s campus along the east side of Alafaya Trail. It’s home to more than 125 companies and 9,500 employees.
“We will design and permit the proposed building, but will likely wait to start construction until we have a long-term, credit-tenant lease,” Fess said. “We are also looking at renovating/repurposing existing buildings. I believe uncertain office demand and unstable pricing/interest rate environment will create opportunities for us in the next six to 18 months.”
GrowthSpotter editor Laura Kinsler contributed to this report.
Have a tip about Central Florida development? Contact me at (407)-800-1161 or dwyatt@GrowthSpotter.com. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.