Office Starts Lowest Since Mid-1990s

Office construction starts in metro Orlando are at their lowest level since the mid-1990s. Seven projects totaling 844,000 sf are all that is in the development pipeline for this year.

"The market is moving toward better equilibrium," Herring tells GlobeSt.com "There is much more discipline in the market this time than during the last recession."

The construction slowdown may be enough to bring down an average vacancy level of 14% among the 12 submarkets tracked quarterly by the Orlando office of Grubb & Ellis Co. Both the third and fourth quarters of 2001 registered that high mark, as 500,000 sf of new product surfaced by year end.

Choking the market is at least 586,000 sf of sublease space--530,415 sf in the suburbs and 47,000 sf in the central business district, Grubb & Ellis figures show.

Herring sees the strongest submarkets for new absorption being Lake Mary, East Orange/Research Park and Southwest Orlando/tourist corridor. The southwest are is where 884,008 sf of empty space exists among the 3.4 million-sf inventory at a vacancy level of 26%, the worst-hit office area in Central Florida, according to Grubb & Ellis' numbers.

In south Orlando, Herring forecasts "no new starts and no new deliveries in 2002 with the exception of St. Joe/Flagler starting 700 Gran Park (100,000 sf/two-story product) if some pre-leasing is done."

On other developments, Herring says, "Even though Duke (Realty) has purchased Millenia land (near Mall at Millenia in south Orlando), I do not believe that they will start a new building in 2002."

He says Jones Lang LaSalle "will not start anything nor will Highwoods Properties or St. Joe Commercial." Herring predicts "it will take at least 12 months to absorb the existing space that is available in south Orlando."

He anticipates the Millenia Mall submarket "will emerge to successfully compete with Lake Mary and East/Research markets for future absorption."

In the Heathrow/Lake Mary submarket, two buildings under construction will be delivered in 2002. They are Duke Realty's 108,500-sf, five story, class A spec building fronting Interstate 4 that will be completed in the third quarter of this year; and Colonial Properties Trust's 155,000-sf, five-story, class A structure, also being built on a speculative basis scheduled for delivery in the second quarter.

In Maitland, the only building scheduled to surface in the second quarter is the class B, 45,000-sf, spec Concourse III being developed by Lincoln Property Co. CenterPoint in Altamonte Springs will deliver a 113,000-sf structure in the third quarter.

The East Orange/Research Park submarket has only Crescent Resources scheduled to start on a five-story, 150,000-sf, class A spec building and finished in the first quarter of 2003.

In Downtown, Herring says "with the exception of the Hughes Supply Co. deal (for a 200,000-sf headquarters building), I do not think that anything (else) will be started." The Hughes project started in February and is scheduled to be completed in first quarter 2003.

At Orlando International Airport and vicinity, no new office construction is scheduled for this year. "It's the worst market in Orlando," Herring says.

"Other than that, there will be no new buildings started in 2002, unless it is a build-to-suit opportunity," he adds.