Year-End 2017 / Office Market Report. Orlando

Transcription

1 Year-End 2017 / Office Market Report Market Facts Speculative Development Projects and Sustained Demand for Space Propel 's Office Market Forward Economic Drivers 37.1 MSF Total office inventory in the office market 973,732 SF Direct net absorption for % Overall Vacancy $26.62 PSF Average rental rate for class A space in on a full-service gross basis Economic fundamentals in remain strong as indicated by the sustained decline in the unemployment rate, which stood at 3.5% as of November 2017 a marked 90-basis point (bps) decrease from the previous year. The furious pace of job growth continues with over 3,500 new jobs added in the trailing 12-month period, and was recently ranked by Forbes.com as being the second best job market in the country, outranked only by Miami. Healthy leasing activity is occurring, and new class A office development has returned to the urban core, as well as to pivotal suburban areas. Additionally, there is a total of $9 billion in infrastructure improvements planned or underway throughout the area, including the massive I- Ultimate project, new terminal development at International Airport, the second phase of SunRail, and the planned connection with All Aboard Florida's Brightline train that will ultimately connect with West Palm Beach and Miami. On the national economic front, The Federal Reserve demonstrated its confidence in the growing U.S. economy by instituting a 25-bps interest rate hike in December, taking the fed funds target range to between 1.25% and 1.50%, with three additional hikes expected during Office Market Snapshot At the close of the fourth quarter, office fundamentals in remained strong with robust net absorption of 973,732 sf and continued incremental gains within asking rents, particularly in the highest demand trophy properties. While there is still an abundance of

2 Office Market Report Year-End 2017 was recently ranked by Forbes. com as being the second best job market in the country, outranked only by Miami. Healthy leasing activity is occurring, and new class A office development has returned to the urban core, as well as to pivotal suburban areas. Average Asking Rent Rate ($/SF/FS) $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Vacancy Rate 20.0% 15.0% 10.0% 5.0% 0.0% Class A Class B Total Direct Sublet YTD Net Absorption (SF) 700, , ,000 00, , , ,000 0 CBD Non-CBD Total Class A Class B sublease space in the urban core tight market conditions continue to persist with limited room for growth. New development projects underway, including key developments in Downtown and Mary, will help to alleviate some of the current pent-up demand for class A, amenity-rich office space. Healthy leasing activity has resulted in a 123 bps drop in the direct vacancy rate since the end of 2016 to a current 8.5%. Vacancies are tightest (with respect to total inventory) in the Winter, Mary/Heathrow, Maitland and Southeast submarkets. Average rental rates continue to inch up in most areas, rising by $0.63 since the end of 2016 to a current $22.16 per sf on a full-service gross basis, with class A rates up an impressive $1.31 over the same period to $26.62 per sf. Although there is still a glut of over 200,000 sf of sublease space in the downtown core, it remains noteworthy that the direct vacancy for class A space in Downtown is a very healthy 7.6%. Leasing was brisk once again during the fourth quarter, with several key deals signed in excess of 10,000 sf. The largest lease was signed by Signature Flight Support in a new $20 million, 155,000 sf class A building to be developed at Nona Town Center in Southeast. The company, a fixed base operator that provides support services for private aviation, signed a lease for 65,000 sf and will be vacating its current space in Seaside Plaza in Downtown when the new building is completed late in Other key leases signed during the fourth quarter included Deloitte taking 9,26 sf at 1001 Heathrow in the Mary area and Magellan Health s lease of 17,021 sf in the Southwest submarket s South development. The Changing Face of Downtown As previously reported, Downtown is seeing its first-class A office construction in a decade after the much-anticipated Church Street Plaza (formerly Tremont Plaza) broke ground during the third quarter. The $100 million development is underway and the 26-story, 601,225-sf tower is scheduled for completion in the third quarter of In response to steady demand for higher-end housing in the urban core that has been fueled by the success of recent projects like Modera at Mills Creek and Aspire, a new $89 million, 320-unit luxury apartment tower is scheduled to break ground in the second quarter of The project, called Radius by its developer Banner Real Estate Group, will be built at North Rosalind Avenue and East Livingston Street and is scheduled for completion in Two major projects in Ustler Development s highly anticipated $1 billion Creative Village development cleared a design hurdle at the close of 2017 and should break ground in The projects include a 15-story parking garage and a 256- unit apartment housing complex. Construction on a student housing complex has already begun and should go vertical in January Other planned key development projects downtown include the Magic's planned sports and entertainment district, which

3 Office Market Report Year-End 2017 together with Creative Village will help to link the west and east sides of the urban core, a 9.5-acre urban park underneath I-, and a planned new Cambria Suites hotel overlooking Eola. Southwest Value Partners Makes a Big Play Downtown Three of Downtown 's most prominent trophy office towers have a new owner following Southwest Value Partners' acquisition of Bank of America Center, One Centre, and Citrus Center. Together, the buildings comprise just over 1 million sf of prominent class A space and the portfolio sold for $208.1 million, or $201 per sf. Southwest Value Partners is now the biggest landlord in the urban core, followed by Highwoods Properties. Development Update Following the delivery of Kirkman Pointe II in the Southwest submarket, there are a total of five notable development projects either underway or preparing to commence construction. In the Mary area, the first building at The Edison at Primera is well underway and the 115,000-sf building is planned for delivery in the summer of As already covered, Church Street Plaza is under construction in the urban core, and there are two buildings underway at Sand West as part of an $80 million expansion, one of which is a buildto-suit for Brambles Limited/CHEP. Nona Town Center will break ground in the beginning of 2018 and two new class A office buildings are planned in the CenterPointe development within the Altamonte/ Longwood submarket. Brisk Investment Activity During Q Several significant investment sales were concluded during the fourth quarter in 's suburban markets. Outside of Southwest Value Partners' significant acquisition downtown, the biggest deal was KBS Realty Advisors, LLC's sale of Maitland Promenade II to a new Singaporebased REIT for $0.3 million, or $175 per sf. Also significant were Real Capital Solutions' purchase of Suntech Commerce I and II in Mary for $19.7 million, or $88 per sf, and the sale of the 123,658-sf Two Resource Square in the University/ Research submarket for $19.1 million, or $15 per sf. The University of Central Florida acquired the building in a joint venture with the State of Florida. Looking Ahead The 2018 outlook remains favorable for landlords and investors. s office market continues to perform, aided by steady employment and population gains, a strong economy, healthy leasing activity and continued developer discipline. Avison Young's expectations for 2018 largely mirror those for 2017 as the economy remains strong and employment growth persists. Vacancy should continue to incrementally decline, even as the new construction underway begins to deliver, and rental rates will likely further strengthen, primarily within trophy properties and those offering a superior amenity package. Investment sales interest is expected to remain high throughout 2018 as investors continue to scour for opportunities.

4 Office Market Report Year-End 2017 ORLANDO MSA TOTAL Class Breakdown Total RSF Direct Vacant SF Sublet Vacant SF Avg Rent Rate % Occupied % Vacant % Sublet Vacant % Total Vacancy Under Construction Net Absorption Class A 16,737, , ,898 $ % 5.35% 1.85% 7.19% 332, ,795 Class B 20,398,18 2,255, ,292 $ % 11.06% 1.55% 12.60% 180, ,937 Total 37,135,95 3,151,057 62,190 $ % 8.9% 1.68% 10.17% 512, ,732 CBD Class A,07, , ,329 $ % 7.61% 3.81% 11.2% 217, ,78 Class B 3,036,12 332,657 5,396 $ % 10.96% 1.50% 12.5% 0 7,588 Total 7,111,189 62, ,725 $ % 9.0% 2.82% 11.86% 217, ,066 Non CBD / Suburban Class A 12,662,98 585,09 153,569 $ %.62% 1.21% 5.83% 115,000 82,317 Class B 17,361,772 1,923, ,896 $ % 11.08% 1.55% 12.63% 180, ,39 Total 30,02,756 2,508,307 23,65 $ % 8.35% 1.1% 9.76% 295, , Corridor Class A 339,75 10,951 6,791 $ % 3.23% 2.00% 5.23% 0 0 Class B 1,000, ,003 17,729 $ % 11.79% 1.77% 13.56% 0 26,616 Total 1,30,67 128,95 2,520 $ % 9.62% 1.83% 11.5% 0 26,616 Altamonte / Longwood Class A $ % 0.00% 0.00% 0.00% 0 0 Class B 2,58,157 68,91 0 $ % 19.08% 0.00% 19.08% 0 (9,36) Total 2,58,157 68,91 0 $ % 19.08% 0.00% 19.08% 0 (9,36) Downtown Class A,07, , ,329 $ % 7.61% 3.81% 11.2% 217, ,78 Class B 3,036,12 332,657 5,396 $ % 10.96% 1.50% 12.5% 0 7,588 Total 7,111,189 62, ,725 $ % 9.0% 2.82% 11.86% 217, ,066 Mary / Heathrow Class A 3,780, ,89 11,061 $ % 3.5% 0.29% 3.83% 115, ,808 Class B 1,93,260 20,786 39,572 $ % 12.39% 2.0% 1.3% 0 52,215 Total 5,723,91 37,680 50,633 $ % 6.55% 0.88% 7.3% 115, ,023 Maitland Class A 2,036,67 36,225 26,877 $ % 1.78% 1.32% 3.10% 0 76,167 Class B 3,973,999 19,9 32,787 $ % 10.55% 0.83% 11.38% 0 8,190 Total 6,010,66 55,67 59,66 $ % 7.58% 0.99% 8.57% 0 160,357 Southeast Class A 919,96 81,596 0 $ % 8.87% 0.00% 8.87% 0 13,8 Class B 25,39 10,982 0 $ % 2.58% 0.00% 2.58% 0 (,017) Total 1,35,385 92,578 0 $ % 6.88% 0.00% 6.88% 0 9,31 Southwest Class A 3,958,8 270, ,059 $ % 9.06% 2.66% 11.72% 0 32,693 Class B 3,078, ,95 65,215 $ % 9.32% 2.12% 11.% 150, ,891 Total 7,036, ,62 170,27 $ % 9.17% 2.3% 11.60% 150, ,58 University / Research Class A 1,329,06 51,731 3,781 $ % 3.89% 0.28%.18% 0 26,030 Class B 3,23,91 302,62 109,779 $ % 9.33% 3.38% 12.71% 30, Total,573,320 35, ,560 $ % 7.75% 2.8% 10.23% 30,000 26,662 Winter / Lee Road Class A 298, $ % 0.00% 0.00% 0.00% 0 1,171 Class B 1,237,803 75,92,81 $ % 6.10% 0.39% 6.9% 0 11,258 Total 1,536,598 75,92,81 $ %.91% 0.31% 5.23% 0 12,29 Reporting Methodology: This report includes all class 'A' and 'B' office buildings and parks 20,000 SF and greater in the MSA that are not owner occupied, office medical, or government owned. All rents are reported on a full service gross basis and are direct weighted averages calculated on total available space. The information in this report has been collected by the Avison Young research team via sources that are deemed reliable but is not guaranteed.

5 Office Market Report Year-End 2017 s office market continues to perform, aided by steady employment and population gains, a strong economy aided by a thriving tourism industry, healthy leasing activity and continued developer discipline. Leading Indicators (Y-O-Y Q-2016 to Q-2017) Vacancy Rate 10.17% Net Absorption 973,732 SF Average Asking Rate (FS) $22.16 New Construction 512,000 SF Total Employment 1.25 MM Significant Fourth Quarter 2017 Lease Transactions - Sorted by SF Tenant Property Type SF Submarket Signature Flight Support Nona Town Center New 65,000 Southeast Deloitte 1001 Heathrow New 9,26 Mary/Heathrow Magellan Health 1200 South New 17,021 Southwest Americredit Financial Services* 00 Town New 15,367 Mary/Heathrow Progressive Debt Relief 100 E Pine St Renewal 12,570 Downtown Pipeline Workspaces 20 N Orange Ave New 11,71 Downtown Integrated Insurance Services* 1707 Central Pkwy New 10,66 Southwest Sorenson Communications University Court New 8,081 University/Research Martin Hild, P.A.* 555 Winderley Renewal 6,210 Maitland Petz Engerprises Alafaya Corporate Center New 6,100 University/Research Clean Slate Alafaya Corporate Center New,856 University/Research Red Lambda* 00 Town New,729 Mary/Heathrow * Avison Young handled this transaction Significant Fourth Quarter 2017 Sales Transactions - Sorted by Sale Price Property SF Sale Price Price/SF Buyer Submarket Cousins Properties Portfolio (No individual property prices available) 1,037,603 $208,100,000 $201 Southwest Value Partners Downtown Bank of America Center 21,069 NA NA Southwest Value Partners Downtown One Centre 355,783 NA NA Southwest Value Partners Downtown Citrus Center 260,751 NA NA Southwest Value Partners Downtown Maitland Promenade II 230,366 $0,300,000 $175 Keppel KBS US REIT Maitland Suntech Commerce I & II 22,501 $19,687,500 $88 Real Capital Solutions Mary/Heathrow Two Resource Square 123,658 $19,100,000 $15 University of Central FL JV State of FL University/Research front I & II 192,767 $16,700,000 $87 B Developments Southeast 2201 Lucien Way 58,592 $6,050,000 $103 Lucien LLC Maitland 31 N Maitland Ave 5,91 $5,250,000 $11 31 Maitland LLC Maitland 2018 Avison Young - Florida, LLC. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.

6 Office Submarkets Eustis SUBMARKETS Mount 1 Year-End Dora LAKE MARY - HEATHROW Mount Plymouth ALTAMONTE - LONGWOOD Dora 6 Heathrow Zellwood Altamonte Springs SunRail Stations S outh Ap opka 1 Forest Cit y Orlovista 29 Butler Horizon West Pine Castle Buena Vista Alafaya Conway Conway B elle Isle Taf t 528 Bay 527 Int l Airport 17 Williamsburg 23 Hunters Creek 92 1 S outhchase Meadow Woods Mar y Jane Nona Medical City Har t Buenaventura s Celebration POLK 192 Kissimmee Hart ORANGE OSCEOLA 192 Four Corners R io Pinar Edgewo o d Oak R idge University Union Azalea Downtown Holden Heights Doc tor Phillips G oldenro d 08 Butler Hill Tibet 3 26 Winter 35 B ay O viedo Lisa McNatt Director of Research 135 W Central Blvd, Suite 700, FL lisa.mcnatt@ G otha Windermere 19 Maitland 17/92 50 Tildenville 1 38 Pine Hills 39 Black Hammock Casselberr y 36 Fairview Shores Ocoee Winter G arden LAKE Jessup Fern 1 Eatonville Winter Springs 17/92 3 Lo ck har t Clarcona Apopka Johns Longwood Wek iwa Springs Ap opka 1 SOUTHEAST ORLANDO Oak land SEMINOLE SOUTHWEST ORLANDO Mont verde Sanford Int l Airport CORRIDOR - E ORLANDO DOWNTOWN ORLANDO Mar y 37 UNIVERSITY - RESEARCH Tangerine Greg Morrison Principal and Managing Director 135 W Central Blvd, Suite 700, FL greg.morrison@ 6 ORANGE WINTER PARK - LEE ROAD S anford LAKE MAITLAND Contact Information VOLUSIA Monroe 29 Sorrento 15 East Tohopekaliga Campb ell St. Cloud Loughman Tohopekaliga Avison Young - Florida, LLC. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.