GlobeSt.com UPDATE: Brokers Bullish on Third-Quarter Office Leasing

ORLANDO-Central Florida’s 29 million-sf office market has joined the company of Miami, Fort Lauderdale and West Palm Beach with vacancies topping the 12% mark. But area leasing specialists are bullish on the third and fourth quarters. Things are looking up, they tell GlobeSt.com.

“The third quarter should be better than the first and second quarters, and the fourth quarter should be stronger than the first three quarters,” says senior office broker Jason Kaiser at Trammell Crow Co.

Christopher T. Sproles, a first vice president at CB Richard Ellis Inc., says, “In general, even though things seem a little slow and there is a lot of sublease space on the market, we are still in a relatively healthy position.”

James Densmore, director of the commercial real estate division at Signature GMAC Real Estate, works the 250,000-sf Orlando West/Winter Garden/Ocoee submarket. He sees no slowdown in leasing activity and looks for a strong third quarter.

“Occupancy is around 95%, so I don’t expect to see much in the way of concessions because there is no need for them,” Densmore tells GlobeSt.com. “We feel the West Orange market, around Health Central hospital especially, will remain one of Central Florida’s strongest commercial areas through the third quarter.”

Second-quarter vacancies in West Orange are 6.4% with only 15,650 sf of office space available, according to preliminary findings by Grubb & Ellis Co.

Growing subleased space is the biggest challenge facing area leasing brokers. The Orlando metropolitan statistical area has about 684,000 sf to 800,000 sf of subleased office space, depending on which brokerage’s data base is being used.

Maitland, the area’s second largest submarket (5.4 million sf) after Downtown (6.3 million sf), has about 375,000 sf of subleased product. The southwest/tourist corridor (three million sf) has 175,000 sf.

“Subleased space is starting to be absorbed,” CB Richard Ellis’s Sproles tells GlobeSt.com. “However, new sublease space, like Schwab’s 83,000 sf, has created a substantial market for sublease opportunities.”

Still, Sproles feels the market will rebound over the final two quarters, based on gross absorption numbers in the first two periods. He puts second-quarter absorption at about 500,000 sf, making total absorption, year-to-date, at about 950,000 sf. That’s below the 1.15 million sf absorbed in the first two quarters of 2000.

“We are below previous years’ figures but these numbers reinforce (a view) that Orlando is a strong, vibrant market,” Sproles says.

Crow’s Kaiser feels there isn’t much of a dent being made to date in the sublease inventory. “It’s moving slowly,” he says, even though property owners are starting to offer one month to three months free rent, depending on the length of the lease, in some submarkets.

Vacancies could climb higher if an expected surge in leasing activity doesn’t kick in during the third and fourth quarters, Kaiser tells GlobeSt.com.

“The south market could see 25% vacancy, Lake Mary could see 20% vacancy and Maitland could hit double digits of 10%-plus,” the broker says.

Preliminary statistics from Grubb & Ellis Co. indicate Kaiser could be right on target. Second quarter vacancy in the southwest/tourist corridor is 22.7%; Heathrow/Lake Mary/Sanford, 12.3%; and Maitland, 10.8%.

Fueling that observation is the amount of new product expected to surface during the third quarter. Kaiser notes, “Jones Lang LaSalle at Millenia in the south market should have their ceriticate of occupancy by the third quarter; Lincoln (Property Co.) and Duke-Weeks (Realty Corp.) in Celebration will add 200,000-plus sf; Maitland Promenade II will add 125,000 sf available in Maitland; and in Lake Mary, Colonial (Properties Trust) and Pizzuti will add more sf in the market,” he says.

Sproles of CB Richard Ellis also is spotting new product that could raise the vacancy level. “The most likely change will come in the Southwest market where MetroWest and Millenia Lakes will deliver almost 300,000 sf in the third quarter,” the broker says.

None of the brokers GlobeSt.com interviewed feel the latest round of federal interest rate cuts will affect third-quarter leasing activity.

“While some industries are directly affected by rate cuts, the effect of these cuts on leasing activity has been negligible,” says Sproles.