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(Carl Cronan is editor of Real Estate Florida.)

ORLANDO-As office brokers keep looking for a silver lining above Central Florida, they can take heart in one bit of good news: vacancy actually fell slightly in the last three months of 2008, even if it was expected to rise. But that 0.2% improvement might as well have been a drop in Lake Eola compared to the market’s overall 15% vacancy rate at the end of the year, based on estimations by GVA Advantis.

More bad news is anticipated this year, with continued employment declines and minor growth in personal income contributing to already negative absorption in the Orlando office market. Overall absorption for 2008 totaled minus 1.2 million square feet, the worst total on record, according to Cushman & Wakefield. Most of the space coming back to the market was in class B and C buildings, as small businesses downsized or closed.

Class A space fared much better, accounting for only 20% of the absorption fallout. Several major office leases were signed during last year’s fourth quarter, including more than 250,000 square feet being occupied by educational publisher Houghton Mifflin Harcourt at SouthPark Center, in Orlando’s southwest submarket.

The only factor preventing an even bigger crater in local office vacancy is a slowdown in development of new space, resulting from the continued restrictive lending environment. Cushman & Wakefield states that 312,500 square feet of space is currently under construction–the lowest level in the past three years.

A return to housing affordability is expected to attract employees and companies back to the Orlando market, which experienced its first decline in job growth since 2002, losing 7,500 jobs last year. That may bode well for current office tenants who plan to continue doing business this year and are either renewing or looking to move to better space.

“During these questionable times, there is a flight to credit by landlords,” says Rick Solik, senior director of office brokerage services with Cushman & Wakefield in Orlando. “Those tenants who have strong balance sheets and the confidence in their longevity can maximize these current conditions by locking in favorable terms.”

Both Cushman and GVA measured average asking rents for class A office space above $25 per square foot at the end of 2008, a strong indication that the region’s office market is holding its own in a difficult economic climate. Technology and medical research firms are seen as strong tenant prospects in the coming year, with the University of Central Florida area showing the most positive net absorption of all local submarkets in 2008, with 98,000 square feet.

“Orlando is no ghost town and doesn’t appear to be in danger of encroaching tumbleweeds,” Shelli Browning, GVA Advantis’ local research director, stated in a report. “For at least a decade, Central Florida has diligently worked to diversify its service-industry reliance and reputation.”

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