Declining construction, lower vacancies and higher rents will make the local market more attractive to investors over the next 12 months, says Steven M. Ekovich, first vice president and regional manager of the Encino, CA-based firm's Orlando and Tampa offices.
"The slowing construction pipeline will allow the market to tighten, with vacancies among inline shops typically in the high single digits," Ekovich says. "Strengthening demographics and employment will give the market an opportunity to improve as absorption intensifies." He expects investors "with long-term outlooks to continue seeking properties in Orlando."
The M&M executive bases his optimistic outlook on the local economy, which he says "will outpace most of the nation in 2004 with 28,000 new jobs anticipated, an increase of 3%."
Employment grew by 1.7% in 2003. The leisure and hospitality sector will again lead the four-county area's employment growth with 9,000 new jobs expects. The professional and business services sector is projected to add 7,000 more positions this year. Also supporting Ekovich's prognosis is the $25 billion in sales metro area retailers recorded in 2003, a 5.1% increase over 2002.
An estimated 2.2 million sf of retail will be delivered to metro area's 56-million-sf market this year. That's a slower rate than the 3.5 million sf which surfaced in 2003, the M&M analysis shows. About 42% of the new space in 2003 was in Orange County, with a similar percentage divided between Seminole and Osceola counties.
Vacancy is projected to fall to 10.7% in 2004 from 11.4% in 2003 as absorption outpaces new deliveries. "Smaller centers will continue to post lower vacancies than community and power centers," Ekovich says. Asking rents are expected to rise by 2.5% this year, to an average $14.86 per sf.
But the juiciest plum for property owners may be in the asking prices for their single-tenant, net lease assets this year, the M&M study suggests. For example, the median price in 2003 reached $205 per sf, up from $122 per sf in 2002. "The jump in pricing is attributable to the substantial increase in sales of drugstores and fast-food restaurants," Ekovich says.
Local shopping center investment activity will be "moderate in 2004 with demand continuing to outpace supply," the broker predicts. In 2003, strong demand pushed the median price from $65 per sf to $90 per sf even as the sales pace dipped to its lowest level in at least five years. Strip centers experienced a stronger increase, from $57 per sf in 2002 to $87 per sf in 2003.
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