After six painful years, vacancy is finally declining in the Orlando office market. Effects of the Great Recession on real estate markets have been thoroughly examined here before, but outside factors that have played such a prominent role in reshaping the office market are creating significant impact. These changes might appear to be negative, but they will ultimately prove positive.
Quantum advances in communication and data storage, new attitudes regarding workplace culture, workspace sharing centers and virtual offices have stirred the submarkets that comprise the greater Orlando area.
While they are affecting all sectors of commercial real estate, they are felt most acutely in the office markets, slowing employment growth and corporate expansion, which have always powered the rate of change in quarter-to-quarter vacancy declines.
Jeff Bloom, NAI Realvest
Cloud-based data storage and paperless transaction platforms have shrunk the size of private offices with file storage rooms. Text messaging, email and file sharing platforms such as Dropbox have reduced the need for face-to-face meetings and demand for conference rooms and private offices.
Real estate closings that once involved several parties in a conference room are antiquated now. Over the past five years, staffed reception areas have given way to scaled down waiting salons with a small desk, a phone and a list of extensions.
Some offices have merged the reception area with the office closest to the entrance, adding occasional reception duties to that office worker’s itinerary.
All these changes have improved efficiency and reduced costs, but they have also condensed the average office suite by 15 to 20 percent.
Landlords that have demolished outmoded office layouts have been rewarded on prospect tours. With the extra space available, tenant reps and clients have more options to choose from, with ready space to meet their needs. Outmoded office space can sit vacant for several years while users choose from repurposed space they can occupy quickly without major buildout costs.
Work habits and attitudes are also moderating office space size. Formality has given way to a warmer, more open office environment. Interior walls and private spaces have disappeared to foster greater teamwork and an atmosphere of transparency.
That means less space is needed for hallways, and more employees can occupy the same gross amount of space. This decade-old trend has been gaining ground as technology — email, headsets and texting — reduces demand for physical privacy and closed doors.
Virtual home offices likewise decrease demand for commercial office space. Companies expanding into new markets now have a choice they never had before in work sharing centers. Savvy developers have created a whole new sub-sector of the office market where individuals and employees can rent space in a specially designed center.
At Catalyst in downtown Orlando, workers share desk space with others in an unassigned area, or choose assigned desk space at additional cost. They have access to amenities, such as a full- size coffee/drink bar, lounge area and high-tech conference rooms with the latest in conferencing technology. They can lease accommodations on a month-to-month basis, requiring very little commitment or cost.
This model started by targeting individuals who wanted a place away from home to work on their own and come and go as they pleased, but larger corporations see it as a viable way to expand and test out new markets.
There is even some talk by larger commercial brokerage houses to dedicate agents and resources solely to the work-sharing offices as a sub-sector of the office market.
Why did office sector employment increase beyond its 2006 level, while vacancy didn’t drop back to its 2006 level in Orlando? Perhaps this is due to the influence of technological changes, and employment’s inability to absorb vacancy all on its own.
There are other factors, such as transportation and highway infrastructure improvements that are also changing how office space is being leased in Orlando, but the changes are more a function of where the office space is being leased as opposed to how much space is being leased.
These changes should be viewed as long-term positive, because they allow for new participants to enter the office space markets by incubating at an earlier level of the companies life cycles in work-sharing space, and the technologies themselves are creating whole new office category types that weren’t around five to 10 years ago, such as app development, web-based software development and web-based marketing. Although the average size of office space might be decreasing, over time the number of office users should be increasing as Orlando, like many other office markets in the country, embraces and assimilates these new trends.
— By Jeff Bloom, CCIM, Broker, NAI Realvest. This article originally appeared in the August 2015 issue of Southeast Real Estate Business.