REPORT: Strong Economy Compresses Central Florida Office Space

Colliers International, the fourth quarter of 2015 continued the trend of landlord-tenant equilibrium in the Orlando office market. Multiple factors were responsible for increased rental rates, such as a decrease in available quality space and an increase in tenant improvement costs. New office lease transactions and expansions, coupled with shrinking concessions, were a result of these factors. And, due to a 20 percent construction cost increase, tenants requested more improvement allowances, which landlords offset into higher first-year rental rates. In response, tenants continued to condense their office space, especially back office users. Office space has decreased from nearly 400 square feet per person to less than 200 square feet per person over the past several years. This trend is expected to continue. Growing economic optimism, along with the promise of new economic development in Central Florida, will enable positive growth in the office market through 2016. Despite a shrinking space-per-employee ratio in leased space, many types of businesses expanded their operations during the fourth quarter of 2015. Market Highlights include:

• Ninety percent of all transactions in the fourth quarter were under 10,000 square feet. • Law firms and banks in Orlando’s Central Business District renewed or downsized their space. • CVS Health signed a new lease for 112,331 square feet at SouthPark Center Building 1400 in the Southwest Orange submarket. • Georgia-based Piedmont Office Realty Trust acquired the SunTrust center tower in Downtown Orlando for $170.8 million, or $246.40 per square foot. The building was 89 percent leased with an approximate 6.3 percent cap rate at the time of sale.

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