A skyline view of Orlando highlighting the mix of established and under-construction office buildings.
Orlando is facing a significant drop in new Class A office construction, with only 15 million square feet expected for delivery in 2025. This is less than 30% of what was delivered in 2019. The commercial lending challenges are impacting developers’ ability to secure financing for new projects. While the market struggles, some signs of recovery are noted with improved vacancy rates and recent large leases in Orlando’s office sector, suggesting potential for future growth despite ongoing challenges.
Orlando is facing a significant decline in new Class A office construction, with space under construction and scheduled for delivery in 2025 dropping to 15 million square feet. This figure represents less than 30% of what was delivered in 2019, just before the COVID-19 pandemic. The challenges in the commercial lending landscape are making this downturn particularly evident, as developers are struggling to secure financing for new projects.
Julie Whelan from CBRE highlighted that the current environment makes new construction difficult for developers. In recent years, Orlando has not seen the completion of a new trophy office tower, the last being the Truist Plaza at Church Street Station, which was delivered in 2019. One of the initiatives in the pipeline, The Edge, a mixed-use tower by Lincoln Property Services set to include 200,000 square feet of Class A office space, has yet to begin construction.
The lending conditions for commercial real estate are anticipated to remain tight for at least the next two years. This constraint is not just affecting Orlando but is a broader trend impacting numerous markets across the United States. Greg Fuller, CEO of Granite Properties, compared the current lending environment to the stagnation experienced during the late 1980s and early 1990s. Fuller’s own speculative Class A office project, which encompasses 600,000 square feet, was initiated in March 2022, prior to the recent surge in interest rates.
Despite these challenges, there are signs of recovery in the Orlando office market. The next well-regarded property is expected to open in 2028 at Westcourt, part of the Orlando Magic’s sports and entertainment district. Enhanced tenant experiences, better floorplans, and prime locations distinguish Class A buildings, driving a steady interest in this segment.
Across Florida, improvements in vacancy rates are being observed, indicating a gradual recovery from the impacts of COVID-19. The current vacancy rate in the state stands at 15.6%, notably lower than the national average of 22.2%. Net absorption for Orlando’s office market reached 95,843 square feet, showcasing a significant recovery as compared to the negative absorption of 297,714 square feet reported in the fourth quarter of 2023.
Although leasing activity softened to 612,606 square feet in the fourth quarter of 2024, sectors such as Winter Park demonstrate resilience, with a low vacancy rate of just 3.8%. Major recent leases include Mitsubishi’s acquisition of 109,600 square feet in Lake Mary and Charles Schwab’s recent transaction involving nearly 500,000 square feet of Class A properties in Maitland and Winter Park. Overall, the year-to-date net absorption nearing 183,917 square feet is expected to boost activity and drive an upward trend in the market.
Rent averages for Class A buildings currently hover around $30.10 per square foot in primary markets, while overall rents remain high at $27.75 per square foot. As tenant activity increases, rental growth is anticipated to continue, fueling a potential market upcycle. Key industries contributing to the leasing activity predominantly include architecture, engineering, and law sectors.
JLL holds an optimistic view of the Orlando office market, pointing to rising concessions, attractive rental rates, and a growing population as contributing factors for future growth. As Orlando continues to navigate the current challenges in construction and lending, the resilience demonstrated by certain submarkets may provide a foundation for recovery and stability.
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