GlobeSt.com UPDATE: 95 Mil-SF Industrial Market on a Roll Despite Economy

ORLANDO-Large leasing transactions in the third quarter are making this a banner year for metro Orlando’s 95 million-sf industrial market, a new Grubb & Ellis Co. analysis shows.

Net absorption totaled 926,262 sf, the highest single quarter absorption figure G&E has recorded since first quarter 2000. Vacancies are at 9.3%, down one percentage point from the previous period.

“Low interest rates, attractive lease options and the financial strength of local and regional tenants have buoyed third-quarter activity,” Michael Shelton, vice president, industrial advisory services group, Grubb & Ellis, tells GlobeSt.com.

“Despite the (Sept. 11) terrorist attacks and the struggling U.S. economy, it appears the market has gone unscathed by the events.”

Only two of the area’s 12 submarkets show vacancies over 10%. The 16.2 million-sf Southeast/Airport hub is at 17.8% vacancies but is showing the strongest absorption of all markets with year-to-date net leasing of 592,817 sf.

R&D and flex rents are averaging $7.41 per sf; wholesale/distribution space is going for an average $4.03 per sf.

The much smaller East Polk County submarket has a 21.8% vacancy level among its 1.2 million sf inventory with a year-to-date absorption of 238,000 sf. Still, that absorption performance is still better than several of the larger submarkets. East Polk wholesale/distribution product gets $3.75 per sf. There is no R&D/flex space yet in this market.

Shelton says his team of specialists anticipates leasing activity to end the year with over 2.5 million sf of positive net absorption, the highest since 1997.

“Net absorption defied the odds by absorbing nearly one million sf during the third quarter,” Shelton says.

But rents are flat. Average asking rent for wholesale and distribution space in the 12 submarkets is $4.29 per sf. Research and development, along with flex space, get an average $7.65 per sf. The rents are higher at some parks when quality office components are part of the leasing package.

Property owners of second-generation bulk distribution warehouse are “feeling the brunt of the soft economy on their asking rental rates,” Shelton tells GlobeSt.com.

In contrast, the 5.8 million-sf 33rd Street/LB McLeod market and the 13.3 million-sf Northwest/Orange Blossom Trail/Silver Star Road submarket have been “nearly immune to the effects of the faltering economy,” Shelton says.

“These submarkets command some of the highest rents in the region because of their central location and tenant appeal,” the Grubb & Ellis executive says. For example, 33rd Street is getting an average $5.59 per sf on wholesale/distribution space; $9.09 per sf on R&D/flex. However, Shelton doesn’t think rents will grow much over the next six months.

On the construction side, owner-built and build-to-suit projects account for 1.1 million sf out of a total 1.9 million sf of new product preparing to surface in 2002. under construction. The remaining 800,000 sf of speculative space is 37% pre-leased. In the third quarter alone, completions totaled 300,000 sf.

South Orlando remains the choice location among most industrial tenants and logistic users. Over 88% of the construction activity under way in Central Florida is being built south of the 408 Expressway and west of Orlando International Airport.

“Although it is too early to tell the long-term effects, if the third quarter were a gauge of future activity, the Orlando industrial market has nothing to be concerned about,” Shelton tells GlobeSt.com.