After five years of economic challenges, the Orlando industrial market — hit harder than any other industrial region in Florida — is rebounding.
During the recession, central Florida experienced what amounted to a full stop in home construction, the failure of dozens of banks and almost no foreign investment. Vacancy rates for Orlando’s industrial warehouse market peaked in 2010 at nearly 15 percent and remained high until 2011.
But now the economy is picking up. Payrolls expanded by 4,400 jobs year-over-year for the period ending in May and construction of multifamily residential has grown consistently. The improvements are part of a trend that could extend for years.
Today, the industrial market that had the highest vacancy rates in the state is now experiencing the greatest absorption, with 1.1 million square feet leased in the second quarter of this year, for a six-month total of 2.4 million feet. That’s a 19.3 percent gain over the same period in 2011 and the third consecutive quarter of positive absorption.
The overall vacancy rate has fallen to 10.7 percent, and that doesn’t tell the whole story. Outlying areas and Class C properties are lagging. In Class A and Class B properties in southwest Orlando and Orlando Central Park, vacancy rates are less than 10 percent and falling, according to David Murphy of CBRE Group.
A number of forces are at work here. First, companies that survived the economic downturn are lean and are poised for expansion and/or acquisition. Second, banks have cleaned up their balance sheets and worked out bad loans. They are now in a better position to lend.
Dade Paper Co., a leading supplier of paper, plastic and janitorial supplies in the Southeast, recently committed to a long-term lease with McCraney Property Co. for a 150,000-square-foot, build-to-suit warehouse and distribution project in Orlando Central Park. The project has received financing from TD Bank and is under way.
Our firm tapped the commercial mortgage-backed securities (CMBS) market last summer for a $65 million loan to refinance a segment of our industrial portfolio.
Additionally, tenants want more space. Many companies waited for the market to improve before committing to new space. The consensus among Orlando’s top industrial brokers is that half of their transactions are lease renewals and expansions from commercial users, construction and home improvement-related, trucking and manufacturing businesses.
For example, Amcor, a large packaging company, leased the 550,000-square-foot former Walgreens distribution center while vacating other facilities. This represented a net absorption of 200,000 square feet. Coca-Cola leased 100,089 square feet at Northwest Distribution Center, McKesson leased 88,000 square feet at Park South Distribution, and Innovative Modular Pre-Fabrication leased 72,000 square feet at Consulate Distribution Center in Orlando Central Park.
We’re also seeing companies consolidate operations, moving from high-rent markets (such as Miami) to Orlando, which has the state’s lowest industrial rental rate of $5 per square foot. The typical company is looking for 50,000 to 80,000 square feet in modern buildings 30-foot clear heights and larger-truck turnaround courts.
Finally, Orlando is bouncing back in part because it is the state’s best logistical network center, offering access to the I-4 corridor, Florida’s Turnpike, U.S. 27 and Beeline Highway. Two-thirds of all truck traffic in the state utilizes these arteries.
What do these trends mean for the industrial market? The market will experience significant rent escalations. Many Orlando brokers we polled expected rates to rise 5 percent in 2013. As the market continues to improve, 7 percent annual growth could occur.
These improvements are giving Orlando general contractors reasons for optimism. Construction will also pick up. Food, light manufacturing and discount retailers want new space. About 250,000 square feet of space is now being built, including 87,810 square feet being developed by the Southridge 11 East Group at South Ridge Commerce Park XI.
Tenant demand, new construction and an improving economy paint a much different picture of Orlando in 2013 than in 2009. During the next 20 years, some of the biggest growth in Florida — and the Southeast — will be along the Interstate 4 corridor and the industrial market will benefit.
— Steven McCraney is president and CEO of McCraney Property Company, which has offices in Orlando and West Palm Beach. The developerspecializes in industrial, office-flex, office, and warehouse distribution property.