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ORLANDO-Central Florida’s industrial vacancy rate jumped by 1.1% in the second quarter to 10.2%, the highest since second quarter 1998 as demand for warehouse, distribution, R&D and flex space slackens, a new Grubb & Ellis Co. study shows. The second half is expected to be lukewarm at best.

“It is becoming more apparent that the Orlando industrial market is delivering a less than stellar performance compared to that of previous years,” Michael Shelton, Grubb & Ellis’s vice president, industrial advisory service group, tells GlobeSt.com.

On the positive side, the broker notes that while tenant movement and expansion has decreased, “there are still a handful of large-space users scouting the market.”

The strongest evidence the market is softening is in the net absorption column. Although second-quarter absorption of 411,310 sf was 113,986 sf better than first quarter’s 297,324 sf, few are betting the full year’s total will match the 2.78 million sf in 2000.

Still, Shelton isn’t giving up totally on the market. “This increase indicates there is still demand in the market and that it is just a matter of time before new prospects surface,” the broker says.

But Shelton himself had predicted in January net absorption would drop to 2.1 million sf in 2001, a number that now doesn’t appear to be attainable, based on first-half performance.

“Many tenants have put expansion plans on hold until the market stabilizes, while others have welcomed the market conditions and seized the opportunity to secure well-located spaces at favorable rates,” Shelton tells GlobeSt.com.

On the supply side, speculative construction is shrinking but owner-built and build-to-suit product is revving right along. The market’s total inventory is up to 94.6 million sf, up two million sf from year end 2000.

Of the total 1.6 million sf under construction, the Southeast/Airport submarket rules the roost as the hottest hub on the horizon with one million sf of new product in the works. Of that total, 1.33 million sf is warehouse/distribution space and only 225,456 sf is R&D/flex.

Besides the Southeast/Airport pocket, only three other submarkets are seeing new construction. They are Southwest/Beeline/Turnpike, 424,035 sf; East/University, 83,000 sf; and Heathrow/Lake Mary/Sanford, 30,000 sf.

Hard-pressed to fill vacant premises, property owners continue to drop rents. Warehouse/distribution rates have dipped 14 cents per sf in one year, while R&D/flex rates decreased by two cents per sf.

“Rents are anticipated to remain flat during the rest of 2001, as large institutional owners come under pressure to remain competitive in the soft market conditions,” Shelton says.

R&D/flex space is asking an average $7.86 per sf; warehouse/distribution, $4.29 per sf. By submarkets, the three million-sf Osceola/Celebration/Kissimmee area is asking $10.48 per sf for R&D/flex space, the highest on the board. But its warehouse/distribution is $4.10 per sf, about average.

Average asking rents in the other submarkets are the 23.6 million-sf Southwest/Beeline/Turnpike pocket, largest of the 12 submarkets–$7.25 per sf, R&D/flex; $3.88 per sf, warehouse distribution, 33rd Street/LB McLeod (5.82 million sf), $8.80 and $5.89; Altamonte/Longwood/East Seminole (5.9 million sf), $8.39 and $5.16; Central/CBD/Maitland/Winter Park (7.4 million sf), $7.91 and $5.47; East Polk County (1.14 million sf), $3.75 for warehouse/distribution with no R&D/flex.

Also: East/University (3.13 million sf), $7.55 and $4.45; Heathrow/Lake Mary/Sanford (eight million sf), $7.34 and $4.09; Lake County (six million sf), $4.51 for warehouse/distribution with no R&D/flex; Northwest/Orange Blossom Trail/Silver Star Road (13 million sf), $6.60 and $4.45; West Orlando/Ocoee/Winter Garden (1.27 million sf), $6.16 for warehouse/distribution. This area has no R&D/flex product.

East Polk County, a perennial rival to Orlando’s industrial market, sports the highest vacancies at 23.4%. Right behind is the hot 16 million-sf Southeast/Airport submarket with 21%. Other double-digit areas are Altamonte/Longwood/East Seminole, 12.5%; Heathrow/Lake Mary/Sanford, 12.3%; and Osceola/Celebration/Kissimmee, 10.2%.

At the low end of the vacancy pole are 33rd Street/LB McLeod, 4.7%; Central/CBD/Maitland/Winter Park, 5.9%; East/University, 6.2%; Lake County, 4.2%; Northwest/OBT/Silver Star, 8%; Southwest/Beeline/Turnpike, 7.3%; and West Orlando/Ocoee/Winter Garden, 5.4%.

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