Orlando’s Suburban Office Sector is Ready for its Time to Shine
The Central Florida market continues to be a bright ray in the Sunshine State with 68 million plus tourists in 2016, and over $10 billion currently invested in major projects either recently completed or underway. Area theme parks, such as Disney World, Universal Studios and Sea World, continue investments in new rides and attractions, drawing even more visitors to Orlando, and setting record attendance numbers on an annual basis.
Tourism isn’t the whole story in Central Florida, though. Notable projects in the urban core include the University of Central Florida’s downtown campus at Creative Village for 10,000 students, the 650,000-square foot Orlando Magic mixed-use entertainment complex adjacent to the Amway Center, and the new $450 million second phase expansion to the Dr. Phillips Center for the Performing Arts. All of these new urban core projects are creating a true live-work-play dynamic in downtown Orlando.
The suburban market is also seeing significant activity. For example, the Health & Wellness cluster at Lake Nona; the $3.1 billion redevelopment at Orlando International Airport; the $43 million improvement of the Orlando Sanford International Airport; and the $1 billion West Orange County mixed-use community all showcase that new investment is not centered in one part of Central Florida.
Transportation improvements, including the reconstruction of Interstate 4 through Central Florida and expansion of the regional commuter rail line, SunRail, position Orlando to handle future growth. The combination of these public and private investments make the Orlando market a prime location choice for residents and businesses. This is reflected in the strong upturn in the residential, retail and industrial sectors this cycle. The office market is now poised to show improvement in key statistics.
The positive momentum in Orlando’s office market should flow through the end of the year and well into 2018. Unemployment is at 3.7 percent and over the past year, the region has averaged 4,000 new jobs created per month. Growth in the office sector should pick up additional pace as landlord confidence multiplies in an expanding economy and could push rental rates up considerably on tightening availabilities. Part of the optimism is based on the type of tenants coming to Orlando.
The typical tenant profile has changed over the last 20 years. What started out as a call center and back office operations market has shifted to a regional hub for major Fortune 500 companies, as well as up-and-coming technology startups.
The exceptional quality-of-life amenities, relative affordable housing costs and diverse labor force are all reasons for existing tenants to expand and new companies to relocate to Orlando. That is reflected in longer lease commitments and tenants’ willingness to invest their own money into their spaces above and beyond the allowance provided by many landlords.
The tight employment picture means that companies are focusing more on retention. Several firms in Orlando are actively working to address employee satisfaction by changing space build-outs to improve the overall work experience and help improve teamwork. These firms are taking the walls down, minimizing private offices and opening spaces to create multi-purpose rooms and huddle areas that will inspire their employees and encourage collaboration.
Leasing activity year-to-date has been remarkably strong, with 1.1 million square feet leased through the second quarter. Only three out of the 13 office submarkets — Central Business District, Lake Mary and Maitland — represented the bulk of activity. The story in the Maitland submarket surprised many since historically the submarket led in terms of available space.
Even with disruptive construction along Interstate 4, the office sector in Maitland was able to increase occupancies by almost 10 percentage points over 18 months to hit 90 percent by mid-year. Tenants flocked to the submarket, signing over 1.6 million square feet of deals in order to take advantage of affordable rental rates and access to a diverse work force.
Significant new speculative office construction has yet to take hold in Central Florida as compared to other markets in the state. Despite the resounding positive economic indicators and improvement in office market fundamentals, questions still remain whether the Orlando market can support new, large-scale office product.
The limited new speculative product, which introduced a single-story project in Lake Mary and another midrise in the Tourist Corridor, have not opened the floodgates for more construction. One factor holding the market back is the discrepancy between current asking rents and the cost of new construction. Until the delta between the two tightens, most developers and financial institutions will hesitate to start any speculative projects. We are confident the demand for office space exists in the Orlando market for the right product in the right location.
— By Richard Solik, Senior Director, Cushman & Wakefield. This article was originally published in the August 2017 issue of Southeast Real Estate Business.