ORLANDO-Investors hunting for bargain commercial properties in 2004 may have to search longer than in past seasons as more owners hold on to older assets, believing they can be refinanced quickly and sold later at higher prices in an improved economy, according to a new Marcus & Millichap market analysis.

“With rising employment giving owners the confidence that worst is over, many are holding recently refinancing properties and awaiting improvement,” says Steven M. Ekovich, first vice president and Florida regional manager for Encino, CA-based Marcus & Millichap Real Estate Brokerage Services Inc.

Ekovich says “investor demand remains strong for well-performing properties” but investment activity is “likely to remain slow for the next 12 months, unless vacancies subside more rapidly than expected.”

As an example of the slow investment sales situation, the broker notes that only two class A properties have been sold in the first 10 months of this year–Citrus Center in the central business district and Celebration Place in Celebration, FL.

But Class B and class C properties, with lower vacancy, “continue to capture investor attention, although prices are flat,” Ekovich says. He expects the metro area’s office market to finish 2003 with an estimated overall vacancy factor of 17.2%, up from 16.2% in 2002.

In 2004, however, “strong employment and low levels of construction will bring vacancy down, with expectations that it will dip to 16.1% by year end,” he says. Downtown vacancy of 13% this year will tighten to 12.3% in 2004, Ekovich projects. He says class A properties have “more severe vacancies, at 22%, than do class B and class C properties, at 15%.”

Some good news for property owners is an expected rise in effective rents–rents that are stripped of concessions and tenant improvement factors. The Marcus & Millichap report projects that with a 2.3% drop expected this year to $16.06 per sf, effective rents will begin to climb back in 2004, increasing by 0.6% to $16.16 per sf.

The strongest rent growth will be in the East Orlando submarket, supported by vacancy of about 9%. In the five-million-sf Maitland Center submarket, “good-quality locations are available for as little as $14 per sf,” Ekovich says.

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