ORLANDO—Market fundamentals are strengthening in Central Florida. Office markets in Tampa and Orlando are witnessing more positive absorption and lower vacancy rates. All this means the scales are tipping toward the landlord once again.
That's the leasing side. On the investment side, buyers, from local high net worth investors (HNWIs) to international sovereign wealth funds (SWFs), are aggressively seeking office properties to acquire across major US office markets, including in Tampa and Orlando.
The bottom line, according to JLL, is that now is a good time to be an office building owner in Central Florida. Indeed, intense capital demand, soaring rents among trophy assets, and rising leasing demand are contributing to a shift towards a more landlord-favorable market, according to JLL's Spring 2014 US Skyline Review.
“All the key factors are coming into play to benefit landlords. Space options are decreasing, which will allow rental rates to increase in the Tampa skyline,” says Sharon Bragg, JLL vice president based in Tampa. “The shift will motivate tenants to secure lease terms in the near future rather than wait for the tide to change. We predict rents in Tampa office market will rise and concessions diminish as the market tightens.”
In Tampa, the office market is experiencing its lowest vacancy rate in the past 13 years. Rental rates are the highest in the past 15 years, and lease term length is up 15% from 2012—increasing from 51 months in 2012 to 59 months in 2013.
In nearby Orlando, the skyline is also seeing growth, with a 43% increase in absorption from 2012 to 2013 and a decrease of the vacancy rate to 13.4% over the past year, signifying a five-year low for this office market, JLL's report shows. Much of Orlando's office space demand is currently concentrating along Orange Avenue and is driven by proximity to businesses and amenities located within walking distance.
In nearby Orlando, the skyline is also seeing growth, with a 43% increase in absorption from 2012 to 2013 and a decrease of the vacancy rate to 13.4% over the past year, signifying a five-year low for this office market, JLL's report shows. Much of Orlando's office space demand is currently concentrating along Orange Avenue and is driven by proximity to businesses and amenities located within walking distance.
“With no imminent construction of new office projects, we expect rental rates to climb further in the Orlando office market as landlords continue to gain an upper hand,” says JLL's Yvonne Baker, vice president and director of agency leasing based in Orlando. “Orlando's Central Business District continues to lead with strong leasing activity and continued tenant demand.”
In Tampa and Orlando, investor appetite is expected to increase this year. JLL reports regional, national and international buyers are scouting the markets for prime, stable office assets to purchase.
“While acquisition transactional levels have remained below historic levels through 2013, we are seeing signs early this year that sales activity will be more active than it has over the past five to six years in Central Florida,” says Jeff Morris, managing director for JLL's Capital Markets Group. “Improving fundamentals and more optimistic valuations are encouraging signs. Investors eyeing the Tampa and Orlando office markets are focusing on top-tier assets, but also value-add properties that are well-located, have a strong tenant roster, or significant growth potential.”
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