Orlando’s industrial market has enjoyed consistently low vacancy, robust new development and significant rent growth year after year since the onset of the pandemic. While fundamentals remain strong, project deliveries and changing size preferences for leased space have caused a shift in activity.
From an economic perspective, Orlando is well-positioned. The unemployment rate has decreased by 30 basis points since first-quarter 2024, reaching 2.9 percent, notably lower than the national average of 4.3 percent. Over the past year, nonfarm employment has grown by 1.4 percent with construction employment seeing a significant increase of 2.9 percent during the same period.
Small to mid-sized spaces
For the past 20 consecutive quarters, Orlando has maintained positive net absorption. Small bay and other tenants under 200,000 square feet have dominated leasing activity, while demand for spaces over 200,000 square feet has significantly slowed.
As a result, year-to-date absorption is just over 800,000 square feet, representing a 40.8 percent decrease compared to 2023’s midyear total and the lowest midyear total since 2020. This slowdown in absorption is accompanied by a rise in vacancy rates, which have increased by 1 percent since last year and 3 percent since 2022.
ATR Commercial Flooring took 150,600 square feet in the Airport-Southeast submarket, which was the largest new lease of second-quarter 2024. All other new leases came in at under 100,000 square feet, further exacerbating the trend of market preferences shifting to smaller spaces.
Two other sizable lease transactions over 100,000 square feet were renewals, with Vital Records signing to keep 111,000 square feet in Lake Mary and Iron Mountain renewing for 100,000 square feet in Orlando Central Park. Both tenants are record storage companies.
With the total market average lease price per square foot currently at $11.05, Orlando witnessed a 2.6 percent year-over-year increase in asking rates. However, rates have begun to soften after exceptional growth since the pandemic.
Properties under 100,000 square feet rebounded with a 7 percent year-over-year increase following a decline in 2023. Flex buildings remained stable, with a 1 percent decrease but a 6 percent increase over the past three years.
Small, off-market deals
Industrial investment sales in Orlando have not ramped up in 2024, as most owners are not selling because supply to buy is low. However, the overall industrial sector continues to lead all property sectors in pricing returns, a sign of its resilience and ability to attract investors, even in uncertain times.
While the properties that have traded have primarily been smaller assets, off-market deals have accounted for a large share of the dollar volume to date, representing a new trend. Blackstone sold two industrial portfolios — the four-building Lee Vista Business Center and the three-building Four Corners Business Park — to LBA Realty off-market for $120 million and $104 million, respectively.
Development to continue
Orlando continues to see strong industrial development activity, with 2.5 million square feet delivered to date in 2024 and another 2.7 million square feet under construction. The momentum has continued from 2023, during which Orlando saw 6.7 million square feet of new deliveries — the highest figure in the previous eight years — despite a broader trend of decreased development activity in other property sectors.
Roughly one-third of Orlando’s industrial development pipeline is focused on buildings ranging from 100,000 to 250,000 square feet, further reflecting the shift in demand toward smaller industrial spaces. Despite slow leasing activity for spaces over 200,000 square feet, big-box industrial landlords are trying to avoid dividing spaces due to rising construction costs.
Looking ahead
Robust leasing activity and healthy demand led by an insatiable interest for small bay industrial and properties offering spaces under 200,000 square feet contribute to an overall positive outlook for Orlando’s industrial market.
The rental rate slowdown and slight increase in vacancy were expected amid new deliveries and continued construction. However, Orlando’s strong economic fundamentals and attractive central location in the state solidify its position as a solid industrial market.
— By Lisa Bailey, SIOR, Principal, Avison Young. This article was originally published in the August 2024 issue of Southeast Real Estate Business.