Market Snapshot: Orlando’s Office Vacancy Tightens
- Apr 22, 2015
Orlando is expected to keep the economic recovery on track this year, so much so that Marcus & Millichap ranked the city 34th on its 2015 National Office Property Index–up 5 places from last year. This is largely due to rent growth fueled by the relatively limited construction and increased hiring in the metro area, which has put significant downward pressure on the average vacancy rate.
Employment figures are steadily climbing in Orange and Seminole counties, while job growth is lagging in other parts of the metro. However, analysts predict that staffing will expand by 3.1 percent during this year and employers will add 35,000 positions in the region, including 4,500 new posts in professional and business services. The Orange and Seminole counties produced the most encouraging absorption figures as well, in areas that include downtown Orlando and the Tourist Corridor. The Lake Mary submarket, leveraging its proximity to executive housing areas and a degreed workforce, is also performing well.
Despite there is an increasing demand of new office space in these areas, office developers have not yet responded. The 220,000-square foot fully pre-leased Verizon Financial Center in Lake Mary accounted for a significant part of all the new space that came online last year, so market analysts concluded that office inventory has been increasing only nominally. Other areas such as Metro West and Kissimmee also produced less vigorous improvements in 2014, and Marcus & Millichap’s 2015 outlook predicts only modest gains. Less than 200,000 square feet of space is expected to be completed this year, down from 398,000 square feet in 2014—a stunning 50 percent decrease.
Rents, on the other hand, are on the rise and operators will foreseeably raise the average rent 3.0 percent to $19.64 per square foot in 2015–a significant jump from 2014, when the rate of growth reached only 1.7 percent. Coupled with the lagging construction and the strengthening demand of new office space, this is estimated to cut the vacancy rate an impressive 130 basis points to 15.2 percent, as compared to the 90-basis-point decrease in 2014. Should this projection materialize, this will be the lowest year-end rate since the beginning of the recession.
Charts courtesy of Marcus & Millichap