While some urban office markets in Central Florida experienced a drop-in occupancy and leasing activity as the second quarter of 2018 drew to a close, stable fundamentals and unabated new construction suggest optimism among landlords and developers. JLL’s recently released Q2 2018 Office Insight report analyzed the latest market data to provide an overview of the major trends impacting Central and North Florida’s markets.
Vacancy is low, but new construction may be at a tipping point.
Orlando ended the second quarter with a healthy 10.3% total vacancy in the office market and unemployment at 3.0%, a historic low. However, rumblings on the horizon could mean challenges ahead.
Throughout Orange County, 119,000 square feet of new product was delivered through the first half of the year, with another 454,800 square feet currently under development. Meanwhile, tenant activity is slowing. While demand grew from 57 active searches in May to 70 in June, the total gain in space requirements was a modest 200,000 square feet. At the same time, 14 leases were executed, and another 19 searches were dropped or substantially delayed.
A wave of sales in 2017 brought new ownership to key office assets. That trend continues as more properties – including Westwood Corporate Center, Northpoint Center, Millenia Lakes and three buildings in SouthPark Center – go on the market.
Looking ahead, several large vacancies are due to hit the downtown office sector in late 2019. For example, SunTrust Bank, which recently signed a lease for 90,000 square feet in Church Street Plaza, will leave behind two spaces totaling 250,000 square feet in SunTrust Plaza. This vacancy will help fill the long-standing void for large blocks of contiguous office space in the central business district.
Rising rental rates show landlords are optimistic that the market will remain buoyant.
Though Tampa Bay’s office market experienced negative absorption in the second quarter for the first time in four years, total absorption since the beginning of the year is a strong 216,575 square feet. JLL attributes the dip into negative numbers largely to a flurry of right-sizing among companies in Westshore that unloaded more than 100,000 square feet of sublease space into the submarket’s inventory.
Vacancy stood at 12.0 percent – 0.2 percent lower than it was at the end of 2017 – and leasing was in line with historical trends. The average asking rental rate is up 4.0 percent over the first quarter, an upward trend that is expected to continue.
With 148,800 square feet of new Class A space delivered in the first half of the year, 267,754 square feet under construction and three large redevelopment projects set to move from the drawing board to groundbreaking early next year, Tampa Bay is geared for continued growth.
New Class A space in the suburbs and the revitalization of the CBD boost Jacksonville’s office sector.
Jacksonville’s Butler Corridor landed three large office tenants in the first two quarters, two in build-to-suit deals. While the recent delivery of the 160,000-square-foot Town Center One pushed absorption for the year to date to negative 97,803 square feet, that deficit should be remedied when all three of the new tenants take possession of their spaces next year.
Downtown Jacksonville’s ongoing transformation from a business center to a mixed-use environment bodes well for the revival of its office market. Recent interest in underperforming office properties continues. Vystar Credit Union purchased the low-occupancy SunTrust Tower for use as its headquarters and plans to move in up to 700 employees when SunTrust Bank’s lease expires in 2019. Ash Properties bought the lightly tenanted BB&T Tower. Jacksonville Shipyards and The District, two large mixed-use projects currently in the planning stages, could continue to generate more interest in Downtown office space.