At a time when nationwide vacancy rates are expected to rise, Orlando is boasting the lowest vacancy rates for office space throughout the U.S.
According to a new report from Newmark Knight Frank, vacancy rates in Orlando fell to 6.3 percent, down from 6.5 percent a year ago.
Last week, Revathi Greenwood, Americas head of research for Cushman & Wakefield, told the Wall Street Journal he expects nationwide office vacancy rates to rise 40 basis points to 13.7 percent in 2019.
The forecast leaves Orlando in a sweet spot, particularly for landlords, Eric Messer, research manager of NKF's Florida division, said.
The small amount of office projects under construction in Orlando (five projects totaling 637,000 square feet), together with the area's robust job growth, creates a favorable market for landlords, he explains.
"If you look at the market, vacancy and rental rates haven't really climbed upward, so there's a good amount of room for growth," Messer said.
The majority of the construction activity in Downtown Orlando (215,00 square feet) stems from the mixed-use, 25-story Church Street Plaza project being developed Tremont Realty Capital. Once complete, the project will feature a hotel and more than 206,000 square feet of office space.
In the leasing department, metros like the Maitland Center submarket were more active than others. Leasing activity in the area outpaced other submarkets for the second consecutive year with 100,000 square feet of mid-size and larger deals.
Rents are also on the rise. Rents in Orlando increased by $0.23 per square foot from $21.76 the previous year. Despite the uptick, Orlando still remains the lowest of all major markets in Florida. Messer said that's due to a lack of available space.
Diminishing high-end available space coupled with small increases in lower-tier asking rents shifts rents slightly downward, he said.
Overall, the Class A sector saw 314,256 square feet of positive net absorption, while its Class B sector struggled with supply outpacing demand, resulting in a negative absorption of 16,660. The report says a decrease in demand for Class B buildings helped fuel a small withdraw from its space.
Investment sales also picked up. Sales of office buildings in 2018 totaled more than $402.8 million across 2.7 million square feet. That's up significantly from the previous year's $181.1 million total of office investment sales across 1.4 million square feet.
Some notable sales include TerraCap's $39.2 million purchase of Resource Square I and III next to the University of Central Florida, and Entertainment Benefits Group's $33.85 million investment for its new Orlando office location at 200 SouthPark Center.
"There's a lot of interest coming from investors," Messer said. "But [a continued increase in sales] depends on whether or not owners put Class A properties on the market."