Service Center Market Vacancies Hit 10-Year High

Rebman Properties Inc. of suburban Maitland, FL puts the vacancy level at 16.72% among 150 flex space buildings south of the East-West Expressway. The 16.72% mark is an improvement from the Q3 17.43% vacancy level but both numbers are the highest the brokerage has recorded in 10 years. The highest vacancy level, 45%, was recorded in 1986.

The Orlando office of Colliers Arnold Real Estate Services Co. shows a 14.72% vacancy in 143 buildings totaling 4.77 million sf of rentable space in the southeast Orange County industrial sector; and a 14.75% vacancy in 133 buildings totaling 6.46 million sf in the southwest Orange County industrial market.

Free-rent concessions and generous interior improvement allowances are the name of the game. "Today's commercial real estate tenants have more leverage than at any time in the last five to 10 years and they are using that leverage to their advantage," Paul A. Whiting, owner of Creative Office Environments in suburban Altamonte Springs, FL, tells GlobeSt.com.

Whiting says tenants are "aggressively renegotiating their lease renewals, even beyond their lease expiration dates, in order to get the best deals from their landlords, like new paint, carpeting and shorter lease periods."

Whiting's 13-year-old company moves and installs office furniture and workstations for businesses throughout Florida. "Demand for new office furniture is way down, resulting in Steelcase, Hon and other high-volume manufacturers to scale back production," he tells GlobeSt.com. "The market is flooded with used high-quality furniture and workstations." Whiting says the value of used office furniture is "about 10 cents on the dollar. Until that used inventory is absorbed, possibly in 12 to 24 months, demand for new furniture will continue to be low."

He says, "Face it: this is now a tenant's market. They hold the cards in a game of commercial poker and they know it. In many cases, a tenant will stay, but only after the landlord agrees to sweeten the pot." Whiting says, "It's not a bluff--it's good business" strategy.

He says the higher vacancy rates, coupled with record-low mortgage interest rates, also have fueled "a buying blitz" among some tenants who figure "it's now cheaper to own than it is to rent."

Whiting cites his own business which leases 10,000 sf in the Josiane Industrial Park, off County Road 427 in Altamonte Springs. His $5,400 monthly rent would easily support a comparable facility and a $600,000 mortgage, Whiting says. "We are looking," he adds.