Absorption, rates fall again in Orlando office market

ORLANDO - We welcome the new year with optimism as we bid farewell to 2009’s anemic economy of corporate debacles and mass layoffs. Office landlords will continue to entice companies that capitalize on economic victims, such as call centers and educational institutions, with huge rent concessions in order to fill office buildings with double-digit vacancies.

When compared to the previous quarter, the overall office lease rate for Metro Orlando decreased by $0.12 to $20.62 psf in 4Q 2009. Lease rates have not been this low since hitting $20.52 in the second quarter of 2006. This is the sixth consecutive quarter of declining lease rates since it reaching its peak at $22.33 in the second quarter of 2008.

Class A space in the Downtown submarket continues to command the highest lease rate of $26.37 psf, a decrease of $1.52 from the previous quarter. In the suburban market, the East Orlando submarket experienced the highest Class A lease rate of $25.69.

The total vacancy rate for Metro Orlando has increased on average by 105 basis points from its low of 7% in the fourth quarter of 2006. Compared to the previous quarter, the total vacancy rate increased by 123 basis points to 19.6%. The Lake Mary and Downtown submarkets experienced the lowest vacancies of 15.9% and 18.3%, respectively. North Orlando and East Orlando submarkets experienced the highest vacancies of 22.4% and 21.2%, respectively.

Net absorption for Metro Orlando increased from negative 404,597sf in the third quarter to negative 445,766sf. This is the fifth consecutive quarter of negative net absorption since negative 578,321 in the fourth quarter of 2008. North Orlando experienced the highest net absorption of positive 9,773sf. The Lake Mary submarket experienced negative 222,633sf or 49.9% of the negative net absorption experienced in Orlando.

Lease rates

The lease rate for Class A office space in the Downtown submarket decreased from $27.89 psf, in the previous quarter, to $26.37. When compared to the previous quarter, the lease rates for Class A and C office space in the total market decreased by $0.42 and $0.11 to $23.44 and $16.23, respectively. When compared to the previous quarter, the lease rates for Class B office space in the total market increased by $0.04 to $20.53.

When compared to the previous quarter, the lease rates for Class A and C office space in the suburban market decreased by $0.13 and $0.12 to $22.66 and $16.16, respectively. The lease rates for Class B office space in the suburban market increased by $0.18 to $18.98.

Absorption

Net absorption decreased from negative 404,597sf, in the previous quarter, to negative 445,766sf. Net absorption increased by 132,555sf compared to negative 578,321sf a year ago. The North Orlando submarket experienced the quarterly net absorption of positive 9,773sf, the highest in the market. The Lake Mary and Maitland Center submarkets ended the quarter with negative net absorption of 222,633sf, and 129,800sf, respectively.

Construction

There are four buildings, or 719,236sf, currently under construction. Of this amount, approximately 289,236sf is projected to be completed in the coming year. The majority of the 3.1 msf of buildings in various planning stages are awaiting commitments from major tenants in order to begin construction.