Orlando Office Market Struggling to Stay Even

Mounting concerns surrounding the health of the economy, meshed with sluggish employment growth, continue to drag down markets across the country. Orlando’s office market–although somewhat buoyed by employment growth experienced in the hospitality and tourism sectors–is no exception. “[People] don’t know where the bottom is and when they’re going to it,” said John Crossman, president of Crossman & Co. They are waiting to see “where this lands and what the next step looks like.” CB Richard Ellis Inc.’s third quarter MarketView report pits Orlando’s vacancy rate 12 percent in the third quarter. Cushman & Wakefield Inc.’s figure, however, trends somewhat higher. Orlando’s third-quarter vacancy rate experienced a year-over-year uptake of 4.1 percentage points to 15.8 percent, a reflection of thinned tenant demand and the completion of more than 1.5 million square feet–more than half of which is unoccupied, according to Cushman & Wakefield’s third quarter MarketBeat report on the Orlando office sector.The report also maintains that Orlando’s CBD market–with a 16.2 percent vacancy rate–fared slightly worse than its non-CBD counterpart–with a 15.7 percent vacancy rate. A chunk of the difference between the rates is attributable to a large vacancy that occurred in the SunTrust building last year that has yet to be filled and the completion of the Dynetech Centre, which still has about one-third of available space, noted Stephanie Lockard, research director for Cushman & Wakefield’s Orlando office.But it’s the occupancy level of Class C properties that has been particularly bruised. Vacancy among Class C assets realized the sharpest increase–9.3 percentage points to 22.3 percent–as smaller shops, the firms that often gobble up this type of lighter-priced space, struggle to cope with the current economic strain, the Cushman & Wakefield report notes. Additional figures contend that absorption ticked negative 996,161 square feet, a marked change from the positive 137,000 square feet notched the same period one year ago. Among submarkets, Lake Mary has the strongest vacancy rate at just 8.3 percent, followed by East Orlando (10.7 percent), Maitland Center (11.4 percent), South Orlando (12 percent), Downtown (13.6 percent) and North Orlando (16.2 percent), according to the CB Richard Ellis report.As tenants struggle to operate effectively amid a time of economic uncertainty, sublease activity has drifted upward. There’s a lot of sublease space, thus competing with either first-generation space or second-generation space,” said Paul Partyka, president & managing partner of NAI Realvest. “So, especially in the sublease category, there are a lot of aggressive rates.”For his part, Bill Moss, senior managing director for CB Richard Ellis, takes a similar stance. “Major tenants in some cases decrease their occupancy needs, and that’s leading to an increased amount of subleased space,” he said. “That’s a trend were not only seeing here but around the state and will probably be with us for a while,” he added, citing Miami, Ft. Lauderdale, Palm Beach, Tampa and Jacksonville as additional markets that have seen slowing job growth negatively impact absorption.It’s important to note, however, that once the presidential election is over, regardless of who wins, a level of uncertainty will be extracted, noted Crossman. “It’s a tenant’s market,” he said. “If a tenant is looking to expand this is a great time to do that.” Lockard expects the market will start turning around with the next year. “With everything that happened related to the hurricanes and the housing downturn … Florida was hit pretty hard,” she said. “Now, we’re starting to see some signs of life here.”