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The Orlando office market continued to inch forward during the third quarter of 2012 with modest net absorption of 74,851 square feet. This marks the ninth straight quarter of positive net absorption for the Orlando office market, which includes more than 38 million square feet of Class A and B office space. Overall vacancy, however, rose 28 basis points quarter over quarter to 17.89 percent due largely to negative absorption in the Maitland Center submarket and due to an increase in available sublease space. The uncertainty created by the presidential election and the pending “fiscal cliff” were likely a factor in these modest third quarter results.
Otherwise, office demand fundamentals continue to steadily improve. According to the Bureau of Labor Statistics, unemployment levels dropped to 8.4 percent in September, down from 8.7 percent in August. The office market will ultimately benefit from a multiplier effect as increases in construction and trade today should lead to increased demand for professional services and therefore increases in office using employment in the near future.
Positive absorption in the third quarter was mostly due to growth within the Downtown/CBD submarket where 76,287 square feet of space was absorbed. The remaining non-CBD submarkets had mixed results with the majority of the gains this quarter occurring in the Southwest/ Tourist and University/Research Park submarkets which absorbed 146,031 and 63,762 square feet of space respectively, while Maitland Center and Lake Mary markets saw negative absorption totaling 234,124 square feet. Average market lease rates for Class A space in Orlando sit at $23.28 per square foot and average market lease rates for Class B space is at $18.40 per square foot, with an average weighted rate of $20.07 per square foot. Lease rates have continued to trend down as the market remains competitive.
Recent significant transactions include Universal Studios’ leasing 45,900 square feet at the Promenade at Universal Plaza in the Tourist corridor and Wyndham Resorts’ leasing 36,000 square feet at 600 SouthPark Center in the Southwest submarket. Zurich Insurance and Digital Risk both signed new deals within the Maitland submarket leasing 27,000 square feet and 21,793 square feet respectively.
The outlook moving into 2013 is for continued improvement especially in stronger submarkets, with the professional and business services and information and technology sectors leading the way. Construction should also improve in 2013 while defense industries may pull in the reins.
— Greg Morrison, CCIM, SIOR, principal with Orlando-based Morrison Commercial Real Estate