Office Activity Begins to Return in Central Florida

While 2020 was a challenging year for office markets around the country, activity is beginning to return to the Central Florida office market, according to the Colliers Orlando office Q4 2020 report.

At the end of Q4, office vacancy averaged 9.2%, a sharp increase from the 7.2% posted at the end of Q4 in 2019. While nearly all markets felt the effects of the pandemic, Colliers says that only the East Orange and South Orlando submarkets registered positive absorption.

In Q4, net absorption was negative 183,344 square feet. However, driven by KPMG’s occupancy of 767,000 square feet in the first quarter of 2020, net absorption for the year was positive at 366,043. Without that lease, year-to-date absorption would be negative 400,957 square feet.

Sublease space accounted for roughly 15% of the overall space available at the end of Q4. At the beginning of the year, it was approximately 10%.

While vacancies rose and absorption fell, Class A asking lease rates moved up slightly—from $28.19 per square foot full service at the end of Q3 to $28.40 per square foot at the end of Q4. Overall rates, covering A, B and C office product, averaged $23.96 per square foot full service, which was basically flat for the past four consecutive quarters.

Just as Class A lease rates ticked up in Q4, investment activity rose at the end of the year. Overall, 26 buildings traded hands in Q4. Still, office investors are showing caution, according to Colliers. Typically, a local market experiences 24 to 30 transactions a quarter for buildings more than 10,000 square feet.  

When transactions did occur in Q4, private equity firms were driving the activity. Most notably, O’Connor Capital Partners out of New York City purchased the Tupperware World HQ Campus (which included a substantial amount of land) in Osceola County in a sale-leaseback for $43.7 million. Among the other notable deals were Piedmont Office Realty Trust acquiring 222 S. Orange Ave. (100% vacant) for $20 million from Susquehanna Holdings and Lexington Realty Trust selling the 61,603 square foot office building at 9200 Southpark Center Loop to Sentinel Net Lease for $14.25 million.

While office struggled in 2020, industrial in Orlando thrived. Orlando hit 7.3 million square feet leased in 2020, which was the most on record for a calendar year. It had 4.3 MSF of new inventory, which was also more than any year on record, according to Cushman & Wakefield. Additionally, it had 4.6 MSF in net absorption, which outpaced deliveries.

Overall, demand is outpacing supply in Orlando. In the last five years, 26.6 MSF of industrial property was leased in the market, according to C&W. New construction created almost 14.3 MSF of new space since 2015.