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ORLANDO-The average third-quarter vacancy level in Central Florida’s 40-million-sf office market stands at 14%, up one percentage point from this time last year, according to a new Colliers Arnold study.

Landlords are offering a mix of incentives as class A rents drop from $3 to $4 per sf in some troubled submarkets. For example, Maitland Center, a 6.87-million-sf market and once one of the dominant office leasing and development areas in the metro area, has a direct vacancy rate of 17.5% with class A rents average $20.31 per sf and class B, $18.15 per sf.

The central business district, at 6.2 million sf, is 13.1% vacant but enjoyed the largest net absorption of 167,049 sf.

“The leasing market is active, but much of the activity is merely renewals and shuffling of tenants between competing buildings, with a handful of expansions,” says Colliers Arnold analyst Bobby Palta.

Absorption was 256,278 for the quarter, up from 63,380 sf in the second quarter. While class A rents are dropping in most submarkets, class B rents are rising as existing space begins to fill up. Class A rents average $20.43 per sf; class B, $18.34 per sf.

“Incentives are keeping the leasing market alive with aggressive landlord concessions,” Palta says. Common perks are one month free rent for each year of a lease and turnkey buildouts financed by landlords.

On the investment side, buyers continue to chase too few properties, the analyst says. However, “with rising interest rates, the investment market is drying up,” Palta says. “The outlook for landlords is still obviously pretty bleak. Some developers are starting a few choice projects with trends in mixed-use or office condos.”

He predicts tenants “will continue to manhandle landlords, but with the steadily improving market conditions, the good deals out there now may not be around for long.”

Among the submarkets, Downtown remains “very solid,” Palta says, even with the dumping of 60,000 sf at the Wachovia Center by Hughes Supply after the building materials supplier moved in to new 150,000-sf headquarter space in Hughes Square at Church Street and Interstate 4. Class A rents average $22.99 per sf; class B, $20.64 per sf.

Seminole County, a 5.89 million-sf submarket with a 15.3% vacancy level, is also active. But “heavy expansion by developers in recent years is causing landlords to drop rental rates and offer meaty incentives to lure tenants,” the Colliers Arnold analyst says. Class A rents average $18.2 per sf; class B, $16.40 per sf.

East Orange County’s 7.1 million-sf inventory at an 11.3% vacancy level, the lowest in the area, continues to lead the market, Palta says. “In the Waterford Lakes area, the office development is following the explosive residential and retail growth. Being situated at the crossroads of the East-West Expressway and the Greenway (State Road 417), this area is emerging as a true edge city within Central Florida.” Class A rents average $18.92 per sf; class B, $18.98 per sf.

West Orange County, a 5.1 million-sf submarket with an 11.7% vacancy market, is “faring quite well, considering the state of affairs in other areas,” Palta says. “Vacancy is moving steadily downwards, as are rental rates.” Class A rents average $20.65 per sf; class B, $19.92 per sf.

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