Orlando, Tampa Office Landlords Gaining Strength

Orlando, Tampa Office Landlords Gaining Strength

Commercial News » North America Commercial News Edition | By Michael Gerrity | April 7, 2014 10:16 AM ET

The tide is turning for commercial office tenants looking for space along the 'I-4 corridor' of Central and West Florida.

That's the prediction says global real estate firm Jones Lang LaSalle (JLL). JLL predicts the Tampa and Orlando office markets will continue to shift into a landlord-friendly landscape in 2014.

As market fundamentals continue to strengthen, Central Florida's Tampa and Orlando office markets see increased positive absorption and lower vacancy rates, factors leading to landlords gaining ground in the office market landscape. 

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.

Therefore JLL says it's a good time to be a landlord in Central Florida.

Factors such as 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 U.S. Skyline Review.

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 percent from 2012 - increasing from 51 months in 2012 to 59 months in 2013 - signaling the shift to a more landlord-friendly office market.

"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," said 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."

The Orlando skyline is also seeing robust growth, with a 43 percent increase in absorption from 2012 to 2013 and a decrease of the vacancy rate to 13.4 percent over the past year, signifying a five-year low for this office market, the Skyline 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," said 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."

JLL's proprietary Skyline report identifies and tracks micro-segments of 43 city centers across the nation.  The Skyline features trophy and Class A buildings, where tenants and investors alike focus demand for office space in a flight to quality and efficiency.  Check out the themes that shape the U.S. skyline.

In Tampa and Orlando, investor appetite is expected to increase this year, with regional, national and international buyers 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," said Jeff Morris, Managing Director for JLL's Capital Markets Group. "Improving fundamentals and more optimistic valuations are encouraging signs. Investors eying 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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