Office-Using Employment Growth Reaches Record Levels in Orlando
The end of the second quarter of 2019 marked 120 consecutive months of U.S. economic growth, the longest on record. The steady climb in investment sales over the past few years has been fueled by record amounts of institutional capital and private equity, and office-using employment has reached an all-time high. By the end of March of this year, Florida’s private sector businesses had created over 208,000 jobs over the trailing 12-month period, and Orlando had reached 48 straight months as the state’s top location for job growth.
Additionally, the U.S. Census Bureau’s latest figures indicate that three of the top 10 fastest growing cities in Florida are in the Orlando area (Kissimmee, St. Cloud and the city of Orlando itself). Altogether, there is $3.6 billion in multifamily construction underway or planned in metro Orlando, and all of this growth is fueling the need for improved transportation and logistics networks, as well as the corresponding commercial development taking place throughout the market.
Finally, world-famous as a vacation destination, Orlando’s $70 billion tourism and travel industry continues to thrive with 75 million visitors during 2018 alone.
Urban core grows
Downtown Orlando’s renaissance continues, with a total of $2 billion in new development projects planned or underway in the 1,000-acre Central Business District. With the largely preleased SunTrust Plaza at Church Street Station scheduled to deliver in downtown during the third quarter of this year, attention is turning to its sister mixed-use property to be built on the site of the Church Street Ballroom. With a relative dearth of large contiguous blocks of Class A space available in the market, the planned second tower is critical for luring new-to-market firms, and the landlord has indicated significant interest from several undisclosed potential tenants.
Also, after two years of development, the University of Central Florida’s shared campus with Valencia College in the $1.5 billion Creative Village mixed-use development is expected to be open when classes begin this month. The impact on downtown Orlando will be significant as the campus will be home to more than 7,700 students and 300 faculty and staff, in addition to the fact that it has led to the development of several nearby apartment communities by the Allen Morris Co., Atlantic Housing Partners and Mill Creek Residential Trust. A downtown grocery store and a food hall are also being planned in the urban core.
Robust development activity
There is a total of $9 billion in infrastructure improvements planned or underway throughout the Orlando area, including the massive I-4 Ultimate Improvement Project, new terminal development at Orlando International Airport (OIA), and the second phase of SunRail. Virgin Trains USA, formerly known as Brightline, broke ground during the second quarter on its $4 billion Orlando to Miami route, which is projected to be complete by 2022. The project will create 10,000 construction jobs and is expected to be a significant economic driver in Central Florida. A future expansion of the line will create a link between OIA and the downtown Tampa area, with the potential to carry 9.5 million passengers annually traveling at speeds up to 120 miles per hour.
During the trailing 12-month period ending June 2019, asking rents were up $0.75 per square foot, or 3.2 percent, across all properties, with Class A rents up 2.3 percent. Net absorption is down fairly significantly over the trailing 12 months due in large part to the dwindling availability of space, particularly high-demand Class A space. However, it remains positive with just over 114,000 square feet recorded during the first six months of 2019.
While leasing was a bit slower during the second quarter, several key deals were signed, the largest of which was Lockheed Martin Corp.’s lease of 136,000 square feet being vacated by Sea World in SouthPark Center. WeWork also leased just over 70,000 square feet at the iconic SunTrust Center in downtown Orlando, making it the coworking company’s first location in Central Florida. Investment activity has also been strong, with $843 million in total office sales over the past 12 months.
It was not so long ago that economists were predicting a coming recession in 2019, and although nothing can last forever, there still seems to be plenty of gas left in Orlando’s economic engine. Lenders have remained more disciplined during this cycle, even as investors replete with capital are pushing property prices higher and higher, narrowing opportunities for yield, and developers have been careful not to overbuild.
In its July meeting, the Federal Reserve decided to cut the federal funds rate by a quarter percentage point — the first reduction to the benchmark rate in more than a decade. The Fed’s move should help keep Orlando’s office fundamentals in check.
— By Greg Morrison, Principal and Managing Director, and Lisa McNatt, Director of Research at Avison Young. This article originally appeared in the August issue of Southeast Real Estate Business.