Demand for office space in the Orlando area is finally picking up, as a dearth of new building and the I-4 Ultimate project are helping to create demand, a new report says.
The report is the product of a firm with a vested interest in the success of office properties because it brokers leases for them. But the numbers and rationale cited suggest some movement in a market that has pretty much been passed over by the economic recovery relative to other types of building.
Residential and commercial building, for instance, have been growing at a strong clip, making office space look moribund.
But the third quarter Central Florida Office Market Report from brokerCite Partners does show progress. If sustained, the office market could help make for a well-rounded economic recovery for the area.
"The leasing market has been steadily improving," Jamie Barati, head of the Central Florida office team at Cite, told GrowthSpotter. "Lack of new inventory has allowed landlords to fill space because office demand has picked up."
There is no competition from new office buildings, since none opened up in the third quarter, continuing the trend of a general lack of office building construction.
The roughly 55 million square feet of office space in the Orlando area carries a 13.4 percent vacancy rate, Cite says. The average vacancy rate was 13.8 percent a year ago.
The average lease rate in the Orlando area is $20.65 a square foot, according to Cite. It was $18.89 a square foot a year ago.
The most in demand areas are Southwest Orlando, downtown Orlando, East Orlando, and areas around the research parks and Lake Mary, Barati said.
So while there is some progress, there is still vacant space to be absorbed and when developers are comfortable that the market is getting tight, they will start building, Barati said.
Cite's numbers show that third quarter absorption was a positive 173,000 square feet, while year-to-date absorption passed the 1 million square foot mark. Absorption measures how much square footage is being taken up even in the face of other events, like lease terminations and early terminations. The higher the positive number, the more new deals are being signed and tenants moving in.
There are also positives coming from the transportation side, Barati said. He cited the I-4 Ultimate project and SunRail's southern expansion recently receiving approval and funding, as well as SunRail securing regulatory approval for a leg to be built from Orlando International Airport to the tourist corridor. These developments will create demand for back office space, Barati said.
Another positive, he said, is some speculative office building going on. In Southwest Orlando, the Kirkman Point II office building, at 140,000 square feet, is being built in this manner, showing a belief there will be demand.
But while there are some signs office space is finally being built, the recovery will likely be uneven.
Insurer CNA will be moving its Central Florida office into the 500 TownPark office building in Lake Mary once it is built. But in taking up residence in the 137,000 square foot office building, CNA is leaving the Maitland Center, which will significantly eat into occupancy. The same may hold true for area businesses that choose to relocate to Lake Mary's TownPark Commons project, which will have 800,000 square feet of office space.
Baranti acknowledged there are office buildings that haven't kept up with the times, or even haven't been kept up and that could put some strain on the recovery.
"Owners of obsolete office buildings will be forced to retrofit or lose tenants," he said.