Polk industrial waits for recovery in market

LAKELAND - Polk County’s economy had one of its weakest performances on record in 2008 as the recession intensified across Florida and the United States. Polk County’s unemployment has reached double-digits as several businesses closed and the construction and housing markets continued to crumble.

Despite this economic news, Polk County continues to hold steady when compared to most areas across Florida. According to the Lakeland Economic Development Council, Lakeland may see three new build-to-suits this year. These include Ring Power, Rooms to Go and Saddle Creek Corp. Combined, these new developments could bring an additional 1 msf to the market, with the potential for 150 new jobs.

Add this to new companies in Polk, such as GTech and WellDyneRX, and we should continue to see job growth for the next few years. According to the Central Florida Development Council, Polk County enjoyed its third-best year in the organization’s history in 2008, creating 1,170 new jobs.

The proposed CSX rail terminal facility in Winter Haven is closer to reality. This project, along with future development of the Integrated Logistics Center, can grow to over 5 msf with projected creation of more than 8,000 jobs. Construction is scheduled to begin later this year.

The overall vacancy rate ticked up slightly this quarter to 10.3%, a notable increase from our 1Q08 vacancy of 9% and our 1Q07 vacancy of 8.2%. For larger tenants, only six buildings provide 100,000sf of vacancy, accounting for 30% of overall vacancy. Thirteen buildings provide vacancy of 50,000 to 99,999sf, with another 13 buildings providing for tenants seeking 25,000 to 49,999sf.

Asking lease rates have remained steady, holding at $5.18 psf NNN. This average asking lease rate represents a decrease from our 1Q08 average of $5.44 NNN, returning closely back to our 1Q07 average of $5.14 NNN.

Lease rates

Overall average asking lease rates for the Polk County market ended the first quarter 2009 at $5.18 psf NNN. These increased rates are due to several high quality and higher priced spaces becoming available in 2008. If vacancy continues to climbs upward, we expect to see rental rates decline as landlords offer more lease concessions to attract and retain tenants.

Manufacturing asking lease rates are up slightly from year-over-year rate of $5.38 psf NNN. Warehouse/distribution asking lease rates are down from $5.35 NNN from one year ago. R&D/flex average asking rates are also up from its year-over-year rate of $7.54 NNN.

Absorption

Despite a very quiet first quarter, Polk County recorded a positive 11,559sf of net absorption. We are seeing positive absorption in our sublease space, as tenants look to more cost effective and flexible leasing options going into an uncertain economic future. This positive absorption is offset by additional spaces coming onto the market. These spaces are a combination of sublease offerings, additional space being added to the market due to downsizing, along with companies going dark and vacating their spaces.

There continues to be demand in the market, but the timing of deals has slowed down as the market moved to a tenant’s market. More concessions and shorter terms are brought to the table as landlords attempt to attract and retain tenants.

Construction

2009 has brought to a halt several planned developments. Four Corners Business Park Building 1 in Auburndale, Park 27 Building 3 in Davenport and Axcess 4 in Polk City will wait for market velocity before going vertical.

Three buildings are currently under construction in Polk County: Auburndale Commerce Center, Building 1, 93,885sf; 100 Crown Ave., Bartow, 225,000sf; and 1121 Atlantic Road, Lakeland, 12,000sf. When delivered, more than 300,000sf will be delivered to the market with just over 100,000sf anticipated vacant.