The Orlando office market has been recovering during the past 90 days in all aspects and classes. The vacancy rate has been improving. During the third quarter of 2011, it was between 16 percent and 18 percent, which is in line with the national average. According to REIS, the Sanford and Maitland submarkets have the lowest vacancy at 12 percent and 14 percent, respectively.
Sales have been steady, especially bank-owned office buildings, which are trading around 20 to 30 percent below cost. One of the most noticeable sale transactions was $60.8 million sale of the 476,000-square-foot Bank of America Center in downtown Orlando, which Eola Capital sold to Parkway Properties Office Fund II LP in May of last year. Additionally, in October of 2011, Blackstone purchased Duke Realty’s office portfolio, totaling 10.1 million square feet for $1.08 billion. Included in that portfolio were a few assets in Orlando. There are also a few bank-owned office buildings that are under contract and expected close early next year.
The Interstate 4 corridor from Disney to Sanford seems to be a hot spot for development as many companies are looking for more exposure and better access. Duke Realty is building the 133,000-square-foot Kirkman Point, an office building located on Kirkman Road in the south Orlando market, for Megastron Development. The building is slated for completion in February of this year and the first phase of Megastron’s 650,000-square-foot mixed-use development. Additionally, there are projects in the pipeline, including the 1.04 million-square-foot second phase of Health Village, located at Orange Avenue and Rollins Street.
The challenges developers are facing in Orlando include a slow and weak credit supply, the increased price sensitivity of larger companies than in the past due to the slower economy, and better tax incentives being offered by stronger municipalities to coerce large corporations to move into their areas.
However, the major trends in Orlando are generally positive in comparison with the last 24 months. Vacancy is dropping, lease rates are improving, office space is getting absorbed, fewer inventories are available to end users and less buildings are available for sale in the Orlando area.
— Mike Halimeh is a senior advisor in Sperry Van Ness’ Orlando office.