Orlando Commercial Real Estate on the Rise

While various reports indicate a downward trend on Florida housing activity, investor interest in commercial properties remains strong, a broker said Friday during a forecast meeting in Orlando.

“This is a white-hot investment market,” said Jeff Sweeney, president of Grubb & Ellis/Commercial Florida, the brokerage sponsoring the forecast session at the Marriott Orlando Downtown hotel. “It’s still frothy.”

Sweeney said the region’s office markets, rebounding strongly from a slump, could see vacancy rates slip below 10 percent this year. Landlords should be able to impose hefty rent increases as a result.

Nationally, office rents are expected to rise 5 percent to 6 percent, but Orlando’s landlords may get more than that, the broker said. New construction is being held back somewhat by escalating construction costs — up about 40 percent during the past year. Sweeney said Orlando’s commercial market also could peak this year, with rising rents and a shrinking inventory. The area’s retail sector — already very strong, with the lowest vacancy rates in four years — could cool somewhat as the housing market slows from its feverish levels of the past two years, he said.

Retail rent increases could actually moderate this year, he added. Bob Bach, Grubb & Ellis’ national director for market analysis, said real estate investor demand for commercial properties should continue as long as interest rates remain relatively low. The investment returns on commercial property have been beating those of both stocks and bonds, he noted.

Mark Vitner, chief economist for Wachovia Corp. in Charlotte, N.C., predicted that economic growth this year would be slightly slower but still robust.

Housing markets are cooling nationwide, Vitner said, but he doesn’t expect home prices to collapse — especially in Florida, which has been leading the nation in job growth.

“Virtually every area of the state is booming,” the bank economist said. He predicted that single-family home appreciation in Orlando will drop this year from the sky-high, double-digit levels of 2004 and 2005 to more sustainable increases of 5 percent to 10 percent. Vitner said it would take a “significant recession” to cause housing prices to drop in markets such as Florida.

Therefore, as we’ve reported before, there is no reason to worry about the state of the Florida home loan industry.