The Central Florida industrial market (comprised of Seminole, Orange and Lake counties) is currently undergoing a transformation, one that will make the majority of property owners very happy. After suffering crippling vacancy rates from early 2008 through the end of 2011, Central Florida has rebounded solidly and the good news is that there is still time to capitalize on the opportunities.
The current rebound can be attributed to several items, not in any particular order:
• Increased employment opportunities: Orlando’s unemployment peaked in September of 2010 at 11.7 percent and it has steadily decreased. In April of 2014, the unemployment was at 5.2 percent, according to the U.S. Bureau of Labor Statistics.
• Lack of new product / inventory: Since 2008, there have only been a handful of new, speculative industrial buildings built as demand was not there and rental rates were depressed due to the massive amount of vacancy. This has resulted in there being very few choices for companies desiring new, first generation product and led to the current new building pipeline of over 2.4 million square feet under construction as of July.
• Absorption and rental rates: In 2012, we experienced positive market absorption slightly better than 2011. In 2013, we ended the year with explosive absorption. Through the second half of 2014, we have had more positive absorption than in all of 2013. With this absorption has come tighter inventory levels and decreased vacancy rates, which have all led to higher rental rates and made new development feasible again.
Current areas experiencing the results of these events are primarily Orlando Central Park and the Southeast industrial submarket. Both submarkets have experienced tremendous absorption and overall activity. The Southeast submarket is currently undergoing the most amount of new development activity. As of the end of July, there was 1.3 million square feet under construction or in for permit. Those projects include DCT’s new 97,497-square-foot building at its ADC North project, McDonald Development’s 145,800-square-foot building at its Lee Vista project and McCraney Development’s two buildings totaling 700,000 square feet. In addition, East Group is currently developing two buildings totaling just over 230,000 square feet at its Horizon development.
With all of this development occurring, the market has responded favorably. Approximately 425,000 square feet of leases have been signed on these new buildings before they have been delivered. Tenants taking the space have been existing tenants in the market with a need for larger, more functional space and they have been willing to pay a little more for the benefits derived from a new building. Features like 52-foot by 50-foot column spacing, overflow tractor trailer parking and new buildings in parks that have modern architectural features, better parking ratios and a more business park atmosphere are key factors. Tenants like Anvil International, which recently toured more than 10 options in the market, chose East Group’s new building to call home. Anvil, a manufacturer of pipe fittings, relocated from Atlanta and desired quality, Class A space. Another existing tenant currently in Orlando, Bodek and Rhodes, opted to take additional space in a new building in the Southeast submarket when its currently facility could no longer house them. At the top of the clothing wholesale retailer’s wish list was increased square footage and the ability to have trailer parking.
The trends in Orlando are typical of a market rebounding. We are seeing rent growth in core markets, and in noncore markets, rent growth is not present. Leasing velocity is increasing from last year but has held fairly steady for the second quarter after peaking in the first quarter. Investment sales are few and far between for industrial real estate today, mostly due to the lack of inventory on the market available to purchase. Although there are just two confirmed institutional sales this year, there is substantial demand for institutional portfolios and activity remains high when they do come to market.
The outlook is bright for Orlando and Central Florida. With cranes in the air, inventory being added and with solid activity, we are in the beginning stages of a recovery that by all intents and purposes is supportable.
— William “Bo” Bradford, Co-President, Principal, Lee & Associates. This article originally appeared in the August 2014 issue of Southeast Real Estate Business.