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ORLANDO-Smaller shopping centers are expected to continue facing new competition this year as 590,000 sf of unanchored space out of a total 1.5 million sf of new construction is slated for delivery within the next 12 to 18 months, according to a new market analysis by Marcus & Millichap.

“Orlando’s economy has returned to growth levels not seen since the end of 1999,” says Steven M. Ekovich, first vice president and regional manager of Marcus & Millichap’s local office. “In the short term, the outlook for retailers will improve as tourists and locals alike increase the amount of money flowing into the coffers.”

He says the completion of the one-million-sf expansion of the four-million-sf Orange County Convention Center “will attract increased convention traffic and boost retail sales in the area.”

Ekovich’s optimism for Orlando’s retail market is based on total employment increasing by 3.4% in 2004, or about 32,000 new jobs. The most prolific sectors for job gains will be tourism and construction. “Even so, the local economy will continue to diversify, thus assuring the longer-term success of Orlando retail centers,” Ekovich says.

Although he projects new competition for the smaller centers, the M&M executive says most retail strip centers will register vacancy decreases. “Even areas such as the western Colonial Drive (State Road 50) corridor will experience improvement,” he says. “With economic expansion firmly in place, vacant space will decline this year to 11.2% from 12.3% in 2003.”

Asking rents are expected to advance to $14.98 per sf, an increase of 2.8%. “Strong job and retail sales growth will preserve the modest pricing power that returned to Orlando retail owners in 2003,” Ekovich says.

On the investment sales front, he anticipates retail property transaction velocity will remain high this year. “Sellers will continue to capitalize on the low cap rate environment, while buyers seek a foothold on the market,” Ekovich predicts. “Both single and multi-tenant properties will continue to attract heavy investor interest.”

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