(Carl Cronan is editor of Real Estate Florida.)
ORLANDO-Retail property fundamentals will moderate in 2009 because of rising unemployment and falling visitor volume, reports Marcus & Millichap. Even though construction volume will be less than a third what it was last year, there appears to be no avoiding a vacancy creep to 10%.
Negative net absorption is projected throughout the Orlando market as retailers close locations and curtail store openings. Vacancy increases will be worse in outlying areas, such as Lake and Osceola Counties, where population growth has slowed due to the sluggish housing market.
One million square feet of new retail space is slated for completion this year, down substantially from 3.3 million square feet in 2008, according to Marcus & Millichap data. Future development could accelerate when the economy rebounds as approximately 4.2 million square feet is planned, largely in areas between Interstate 4 and Florida's Turnpike.
"Owners and investors still embrace the metro area's long-term prospects for robust household and income growth, but soft property fundamentals will slow activity in the first part of 2009," says Bryn Merrey, regional manager of Marcus & Millichap's offices in Orlando and Tampa. "Nevertheless, the ongoing re-pricing of properties is resulting in rising cap rates, and buyers could start to return to the market as the year unfolds."
Cap rates for multi-tenant assets start around 8% with properties in established areas, including western areas of Orlando, will likely get more attention from investors in coming months, Merrey predicts. However, vacancy increases on the city's east side, particularly in the emerging biotech corridor and near the University of Central Florida, could cause some moderation in bids, he says.
The Orlando market is expected to lose 25,000 jobs or 2.3% throughout this year, up from 19,000 in 2008, based on Marcus & Millichap research. In turn, reduced spending and softer space demand will push local retail vacancy to 10% from 8.4% last year, though the increase will be slightly less steep because building plans are no longer as aggressive.
After two years of stabilization, asking rents are forecast to decline 3.4% this year to $18 per square foot, Marcus & Millichap states. Effective rents should recede 4.2% to $15.61 per square foot.
Local retail brokers say landlords are working hard to keep and attract tenants, offering below-market rents plus generous improvement allowances. In turn, they say tenants are able to sign leases now at terms that they might not have afforded before.
"Landlords need to be very competitive on new deals and be in constant communications with existing tenants to have a full grasp on their performance," Jorge Rodriguez, senior associate with CB Richard Ellis in Orlando, tells GlobeSt.com. "On the flip side, the current economic challenges we are facing make it even more important for tenants to consider the strength and capacity of their prospective landlords."
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