ORLANDO-Not since 1995 has metro Orlando’s 81 million-sf industrial inventory dropped to existing vacancy levels of 10.7%, a new Cushman & Wakefield of Florida Inc. report finds.

Direct net absorption for the second quarter was 450,000 sf, bringing the year-to-date total to a negative 616,144 sf.

“A return to a healthier overall vacancy rate below 7% will most likely not occur until late 2003 at the earliest,” Larry D. Richey, Cushman & Wakefield’s senior managing director for Florida, says in a prepared overview.

Leasing activity was modest in the April-June period at 543,000 sf, but combined with the first quarter, the year-to-date activity of 1.44 million sf is “respectable, considering market conditions,” Richey says.

“The Orlando industrial market has historically been slow to absorb excess space, but a gradual decrease in available inventory is expected over the next 12 to 18 months,” he says.

The only positive aspect of the market is that corporations once again are looking at real estate ownership in place of leasing, a factor that could help fill 1.4 million sf of vacant subleased space, the C&W study says.

“Despite the historical reluctance of Corporate America to own real estate, the dramatic decline in interest rates has contributed to an increased interest in ownership,” Richey says. “For those stable companies, large or small, that are able to accurately predict their long-term space needs, ownership has become an attractive alternative.”

He says lenders are “much more aggressive and interested in lending to users, given the current state of the market.” Also contributing to this trend, Richey says, has been the decline in stock values and the belief by many that real estate is a more secure long-term investment.

“With these principles in mind, it’s possible users will begin purchasing buildings at a higher rate than previously seen, thereby helping to absorb excess inventory,” Richey says.

The two largest subleases completed in the second quarter were at the 121,000-sf Publix site at 38 Skyline Drive and the 154,347-sf U.S. Food Services facility at 2412 Sand Lake Road.

“The main concern is that the tenants are not finding subtenants for the space, in part due to tough competition from more flexible lease terms offered in direct second-generation space,” Richey says.

The southern submarkets near Orlando International Airport were hit hardest. “Large distribution warehouse companies planned prior to the market downturn to sublease their space and move into newer or larger facilities,” the C&W executive says.

New construction has dried up. The only new project the report notes is an 18,750-sf building at 5442 Aloma Ave. in the University/Forsyth Road market.

Four second-quarter completions were the 162,000-sf structure, 7000 Kingspointe Parkway, Regency-Southwest submarket; the 57,600-sf Orlando Regional Hospital System’s patient care center, 3090 Caruso Court, Michigan Avenue industrial corridor; the 26,250-sf Carter CommerCenter I, Silver Star Road corridor; and the 22,500-sf Carter CommerCenter II at the same site.

“Most of the 2002 construction completions are largely vacant,” Richey says. “Speculative industrial development is expected to remain at a minimum, consisting primarily of smaller office service or warehouse buildings of less than 30,000 sf in total size.”

For the rest of the year, Richey expects “very few larger projects to break ground, with the possible exception of those designed for identified build-to-suit users.”