A new Grubb & Ellis Co. analysis shows net absorption and new construction in 2001 and 2002 will slow down while average rents for research and development/flex space and warehouse/distribution will rise about 3.25% this year. But the overall industrial sector will continue to be a runaway engine, Grubb's industrial specialist Michael Shelton tells GlobeSt.com.

"The wave of telecommunication development, which began to take shape in first-tier cities, is now in full swing across metro Orlando," Shelton says. Over 500,000 sf of telecom hotel space is under way or has recently opened. But new construction isn't going to set any records this year or next, Shelton says.

For example, net absorption of 2.76 million sf is expected to drop to 2.1 million sf in 2001 and 1.8 million sf in 2002. Likewise, new completions of 3.8 million sf last year are projected to slip to 2.2 million sf this year and 2 million sf next year. But that slippage is expected to stabilize the whole sector as newly-completed and existing space begins to fill and vacancies drop.

The Grubb & Ellis analysis projects that very scenario. For example, the 76.4 million sf of warehouse/distribution space exited 2000 at an 8.1% vacancy level. In 2001, those vacancies will drop to about 7.5% and in 2001 to 7.1%. The 16.2 million-sf R&D/flex column, currently at a 14.2% vacancy mark, is headed to the 13.1% level this year and about 12.9% the following year.

Average rents, however, will be creeping upwards. Expect warehouse/distribution space of $4.37 per sf and R&D/flex product of $8.01 per sf to each increase by 3%. Spec space development holds no fear for metro Orlando investor/builders. Consider the vibrant southwest submarket where Crownpointe Commerce Park, Liberty Park and Cypress Park East aggregately delivered one million sf of spec product last year.

South Orlando remains the site of choice for most new developments because of its proximity to Orlando International Airport and newly-completed transportation networks. Look for neighboring Lake and Polk counties to continue rivaling the larger Orange, Seminole and Osceola counties for new developments as they offer lower land costs and more economic inducements for corporations to relocate. In fact, the carrot-offering contests already have begun in several sectors where property owners are again offering some free rent and cash bonuses for tenants to sign on.

Jobs and location will drive the industrial market as they have previously. "All sectors of the (Orlando) economy will continue to receive a boost from the ongoing expansion of Orlando International Airport which, over the next decade, will create more than 21,000 jobs," Shelton tells GlobeSt.com.

Instant Insights /

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