The general purpose, multi-tenant office market, lacking robust absorption according to a second quarter report by Jones Lang LaSalle, is “stuck in lateral motion.” Indeed, while net absorption for the first quarter was counted by Reis at 117,000 square feet, 134,000 completed construction, all in the four-story Building 1 at Kirkman Point Professional Park in the South Orlando submarket from developer Megastron (more below). The second quarter followed with absorption at negative 49,000. July added 2,000 square feet to that quarter’s loss. Vacancy, accordingly, has been unable to manifest a definitive downward trend. At 17.4%, the second quarter rate was up 20 basis points for the period and duplicated the rate recorded a year earlier. The rate was 17.4% at the end of July as well. Construction remains muted.
Meanwhile, the Orlando Sentinel reported in July, an unnamed Fortune 100 company “affiliated with the entertainment industry” has “signed one of Central Florida’s largest office leases in recent years,” taking “more than 100,000 square feet” in the new Kirkman Point building. The space will be used for back office operations, according to the report. Cushman & Wakefield appears to identify the tenant as Walt Disney Parks & Resorts. In addition to the Kirkman project, the 100,000-square-foot Majesty Building in Altamonte Springs will deliver this year. Reis expects completion in October. No other competitive general purpose buildings were under construction metrowide per the date of this report. Also in Altamonte Springs, however, Crescent Resources began construction in May on the 199,800-square-foot second building of a new corporate headquarters complex for Adventist Health System. Reis expects the owner-occupied facility to complete in January 2013. A 150,000-square-foot first phase finished in December 2011.
Rents remain largely weak. At $20.99 psf and $16.64 psf, asking and effective average rates for second quarter were down 0.3% and 0.4% from the quarter before following first quarter’s largely flat performance. No additional changes occurred in July. “Expect tenants to retain the upper hand in lease negotiations for the remainder of 2012, with asking rents stable for the foreseeable future,” states Cushman. “[L]andlords remain competitive for tenants,” reports Jones Lang LaSalle. See Special Real Estate Factors for additional commentary on rents.
Reis expects a positive net absorption scenario, with demand in excess of new supply—for the remainder of the year. Vacancy should close 2012 below 17.0%. Rents slowly recovering, should eke out small gains over the year’s remaining months.