At least 60,000 jobs have been cut in the Orlando metropolitan area throughout the past year, leading to an unemployment rate of 10.2% in May, according to the Florida Agency for Workforce Innovation. At the same time, local hotel occupancy in mid-June to 63%, based on Smith Travel Research data.
Marketwide asking rents are expected to decline 4.5% this year to below $18 per square foot, with effective rents projected to fall 5.8% to just above $15 per square foot, Marcus & Millichap says. Transaction velocity over the past 12 months has been cut in half.
"Despite the metro area's lure of projected population growth, rising population density and higher household incomes, transactions are at a standstill," says Dan Colachicco, regional manager of Marcus & Millichap in Orlando. "A lack of liquidity in the credit markets that has suppressed investment activity in other markets has affected Orlando as well."
The inability of owners to sell properties in other states has curtailed the purchase of single-tenant assets to complete 1031 exchanges, despite the market's ample supply of new properties in emerging locations, Colachicco observes. There have been too few sales this year to accurately gauge cap rates, though grocery and drugstore-anchored shopping centers may command less than 8%, he says.
"Prospective investors may not underwrite a turnaround in fundamentals until sometime next year," he says. "In outlying areas within Lake and Osceola Counties, the recovery may take longer."
Among other highlights of Marcus & Millichap's second-quarter retail report on metro Orlando, builders are expected to complete only 750,000 square feet of new space this year, just over a fifth of that built in 2008. Also, concessions measure at least 13% of asking rents and are expected to rise as landlords try to retain tenants and maintain traffic at their properties.
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