The national and global economy experienced its fair share of fluctuations during the quarter, from geopolitical events and increased interest rates to the ongoing war in Ukraine and recovery from the pandemic. However, activity and demand for industrial space in the Central Florida market remained strong in light of the fluctuating economic forces globally. Orlando metro area unemployment rate hit 3.7%, falling 220 basis points (bps) year-over-year (YOY), on the addition of 91,400 jobs, for an impressive job growth rate of 9.7%. In addition, industrial landlords benefited from steady employment gains in sectors that positively impacted demand. Those sectors included an increase in trade, transportation, and utilities of 7.7% and a manufacturing job growth of 3.6%.
The overall vacancy rate for industrial and flex properties in the Central Florida market was 3.6% in the 2nd quarter. Industrial (non-flex) properties, which comprise 88% of the market, had a vacancy rate of 3.1% and have remained in the single digits for nine consecutive years. Flex properties, which comprise approximately 12% of the total industrial market, observed vacancy rates increase slightly to 6.0%, a 1% increase from a year ago. The overall low vacancy rate continued to influence asking rates upward. Warehouse and distribution space averaged $7.75-$9.50 per sq. ft. during the year’s first half. These rates were 35% higher than four years ago when rates were under $6.00 per sq. ft. The region recorded 672,000 sq. ft. of the absorption during the 2nd quarter, while year-to-date absorption stood at 1.8M sq. ft.
Healthy tenant demand, combined with a decline in vacancy, continued to create a ripe environment for industrial development in the region. As a result, industrial construction tripled over the last three years, with over 10M sq. ft. currently under construction or proposed near-term construction, as developers attempted to meet the growing demand for space.
Year-to-date investment sales average sale price continued to increase for the fourth consecutive year, increasing 19.7% over last year and 71.4% higher than the average rate before the pandemic. Interest from local, national, and foreign investors in Central Florida’s industrial products remained active for all industrial types and product categories, ranging from value-add opportunities to stabilized assets. Several assets have recently traded, albeit investment activity remained vibrant during the year’s first half, with lenders remaining cautious/conservative for industrial products due to worldwide events affecting the market.