Numbers Show for First Time Office Market Is Softening

The 10.3% first-quarter vacancy mark is up from 9.3% in fourth quarter 2000 and could creep higher in the second and third quarters as the amount of subleased space grows and product comes on line, the report indicates.

Grubb & Ellis is the first brokerage locally to pinpoint the softening market but other commercial houses are expected to come to the same conclusion shortly, area brokers tell GlobeSt.com.

For example, even though new construction is slowing, 2.15 million sf is currently being built. About 35% or 754,506 sf is preleased, leaving 1.4 million sf of new space to be filled.

Almost all of the new construction is in the suburbs with only 126,000 sf in the central business district. Lake Mary/Heathrow continues to dominate the region with 500,000 sf of new product in the pipeline.

"No new speculative building is expected to break ground in the near term," Grubb & Ellis office specialist Andrew E. McCaw Jr. tells GlobeSt.com. "Many developers have pushed back any new construction starts until market conditions warrant or preleasing tops 45%."

Of the 11 submarkets Grubb & Ellis tracks, the three million-sf southwest Orlando tourist corridor suffered the most in the first quarter with a vacancy level of 21.4% and negative net absorption of 41,246 sf.

Worse, there is 300,000 sf of new construction under way in the southwest submarket with less than 20% pre-leased. Other submarkets are faring better, including the CBD, East/University and Osceola/Celebration.

The 6.1 million-sf CBD has 525,710 sf vacant (8.5%) and a negative absorption of 51,995 sf.

East/University's 2.65 million-sf inventory has only 181,835 sf vacant (6.8%) with a positive absorption of 305,028 sf.

Oceola/Celebration, in the Walt Disney World attractions corridor about 20 miles south of Downtown Orlando, has only 854,245 sf of rentable space but has it almost all leased except for 39,487 sf (4.6% vacancy).

The amount of subleased space is growing, a result of companies moving out of the area, the report shows. A total 224,170 sf of subleased space is on the market with 134,207 sf in class A and 89,963 sf in class B.

Rents are rising but at a slower rate than last year, McCaw points out. Market-wide, class A rents rose three cents to an average $22.30 per sf and class B went up 11 cents to $17.61 per sf.

By comparison, McCaw notes, the average quarterly increases of class A and B rates in 2000 were seven cents and 17 cents, respectively. Winter Park at $24.76 per sf and Downtown Orlando at $24.45 per sf are quoting the highest class A rents.

Asking full-service rents by submarket, with class B bracketed, are: CBD, $24.45 ($20.34); Altamonte/Longwood/East Seminole, $19.07 ($15.67); East/University, $20.36 ($14.82); Heathrow/Lake Mary/Sanford, $19.83 ($15.32); Maitland, $21.62 ($18.53); Osceola/Celebration/Kissimmee, $19.38 ($12.11); Southeast/Airport, $20.99 ($16); Southwest/tourist, $22.01 ($18.70); West/Ocoee/Winter Garden, $16.63, class B; no class A; Winter Park, $24.76 ($17.25). The Northwest/Apopka submarket has 87,000 sf of class C.