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Orlando Diversifies and Prospers

Until the onslaught of the Walt Disney Co. in the 1970s, Orlando was the sleepy center of the citrus industry. Since then, to the outside world it has become synonymous with Disney. But to local residents it has evolved into a dynamic and diverse economy. Its booming population of 1.8 million, up 50% since 1990, is helping to fuel jobs in high-tech, construction and academia. What's more, it's become a bustling urban center undergoing $1.3 billion of new development.

“Orlando has always been viewed as having a service-oriented employment base. While that's still strong, the area also has one of the fastest-growing universities and high-tech growth corridors,” says Jason Canin, vice president of Charles Wayne Consulting, a local apartment research firm.

The region's vital signs reflect that vibrancy. Orlando placed third for employment growth among the top 64 U.S. markets in the second quarter of 2004, according to New York-based research firm Reis. That momentum has been building. In 2003, metro Orlando added 19,300 jobs, a year-over-year increase of 2.1%. Employment growth should accelerate to an annualized rate of 4.1% in 2005, which would lead to the creation of 39,280 jobs, according to real estate brokerage firm Marcus & Millichap.

Job growth in the construction industry rose 9.7% — totaling 5,800 new jobs — in 2004. That's hardly a surprise. Orlando's downtown is teeming with new mixed-use development. Almost 1 million sq. ft. of office space is under construction or planned in addition to more than 3,000 residential units, according to Frank Billingsley, executive director of the Orlando Downtown Development Board. Two university campuses are also under construction: Florida A& M University's College of Law, and the University of Central Florida's School of Film and Digital Media.

The School of Film and Digital Media will be located in an existing building called the Orlando ExpoCenter, an outdated exhibit hall that had trouble getting bookings, says Billingsley. The city of Orlando is donating the building, and the Community Redevelopment Agency is paying $4.2 million for the build-out, while the university chips in $2.1 million. The downtown facility, 12 miles west of the main campus in metro Orlando, is expected to stimulate creativity and help connect the University of Central Florida to the city, he says.

One of downtown's largest projects, the $140 million Premiere Trade Plaza, broke ground in November and is being developed by Cameron Kuhn, who has completed 15 downtown projects since moving to Orlando from Chicago in 1991. The plaza will contain two office towers with 383,000 sq. ft., including 310 residential units, 105,000 sq. ft. of retail, and a 12-screen movie theater. Two blocks of office and retail buildings — some dating back to the 1920s and which have stood empty for several years — will be the keystone of downtown, according to Billingsley.

On Dec. 9, developer Kuhn announced plans to build an even larger retail-office complex a few blocks from Premiere Trade Plaza that will feature 750,000 sq. ft. of offices, stores and restaurants and be completed by 2008. Another project is the 291,000 sq. ft. CNL Plaza II, which complements the 330,000 sq. ft. CNL Plaza, slated for completion in 2005. The largest tenant the developer has snagged so far is law firm Akerman Senterfitt & Eidson, which signed a lease for 80,000 sq. ft.

Mending the Office Market

Improving fundamentals bode well for all this new office space. Orlando's office market has posted four consecutive quarters of positive absorption, according to the Trammell Crow Co. Furthermore, there was more absorption in the third quarter than in the previous three quarters combined, or roughly 483,000 sq. ft. This compares with a 300,000 sq. ft. negative absorption in the third quarter of 2003.

The direct office vacancy rate, which does not include sublease space, fell to 13.2% in the third quarter, down from 16.7% a year earlier and its lowest level since 2001, according to Trammell Crow. Meanwhile, the average asking rent in the third quarter of 2004 was $19.24 — a figure that hasn't fluctuated much in the past two years — reports Trammell Crow.

More office space is slated to come on line at existing business parks about 10 miles from downtown. A growing link between Cape Canaveral 30 miles to the east and Orlando's high-tech community is fueling demand for research and development space, says Stan Giberer, an associate with economic consulting firm Hank Fishkind & Associates Inc.

One of the fastest growing occupations in metro Orlando is computer software engineering, which applies to military as well as entertainment technology, says Trent Flood, spokesperson for the Metro Orlando Economic Development Commission. The Florida Agency for Workforce Innovation, a state agency, estimates that the number of employees in this sector will grow by 6% per year for the next several years.

Businesses such as German technology company Siemens are snapping up office and R&D facilities in properties such as the Central Florida Research Park at the University of Central Florida, where the tenant roster includes the Army Simulation Training and Instrumentation Command, the Naval Air Warfare Center-Training Systems Division and the Air Force Modeling and Simulation Office.

In October, the research park entered into an agreement with the nearby 2,400-acre International Corporate Park to expand into 231 acres at the north end of the development, where the Orange County Research and Development Authority will build 3.5 million sq. ft. of offices and R&D facilities. About 85,000 people work in high-tech companies that specialize in computer simulation, fiber optics, laser optics and software.

Hotels are Starting to Hop

Tourism still dominates Orlando, employing some 120,000 people out of a workforce of about 974,000. Tourism rebounded fairly quickly after 9/11, from 40.8 million visitors in 2001 to 45 million in 2003, and hotels in Orlando like elsewhere have gradually recovered.

Through October 2004, RevPar was up 17.4% over the prior year. Occupancy rates for the metro area registered 71.9% this past October compared with 62.5% a year earlier — a 15% improvement.

Hotel developers have been slow to expand. “In the wake of 9/11 and a recession, the industry was doing so poorly, no one wanted to build hotel rooms,” says Alinio Azevedo, an analyst with Ernst & Young's Hospitality Services Group in Miami.

Supply grew by only 1.7% in 2003, according to the Orlando-Orange County Convention and Visitors Bureau. Supply was projected to expand by a nominal 1.3% in 2004. Only 767 rooms were under construction at the end of 2004, according to Smith Travel Research.

The recent completion of the $748 million, 1 million sq. ft. addition to Orange County Convention Center is a catalyst for hotel expansion. The facility, which currently boasts 2.1 million sq. ft. of floor space, is the second-largest convention center in the country.

While there is a significant increase in the number of developments planned, it will take several years for these properties to be completed, says Azevedo of Ernst & Young. Among them: the second and third phases of TravelLodge, each with 270 rooms, expected to open in 2005 and early 2006; Regent Winter Park Resort and Spa in Orlando North, with 150 units, to open in late 2006; Rosen's Shingle Creek Resort on International Drive, with 1,500 rooms, slated to open in late 2006; and a 425-room Four Seasons in Celebration, to open in 2007.

Condominiums Springing up

Orlando is experiencing unprecedented activity in condos, which have historically represented a small percentage of the multifamily market, according to Owen Beitsch, executive vice president of locally based Real Estate Research Consultants. It's not surprising in light of the area's growing population, up 50,000 a year on average for the past four years.

As many as 13 condominium projects have been proposed or were under construction downtown as of December 2004, says Geoffrey Brown, business development manager of the Downtown Development Board of Orlando.

If all these projects come to fruition, there could be as many as 5,100 residential condominiums in downtown within the next 18 months, including 1,800 existing units, says Billingsley.

One of the largest projects is the $80 million Thornton Park. The mixed-use project will include 312 condos, a 29,000 sq. ft. grocery store, 5,100 sq. ft. of retail and 3,100 sq. ft. of office space. Another project, 55 West on the Esplanade, developed by Dutch company Euro American Advisors, will be a $140 million mixed-use center featuring 363 residential units, 25,000 sq. ft. of office, a 25,000 sq. ft. fitness club and 45,000 sq. ft. of retail.

Apartment Supply Dwindles

While the condo market booms, apartment owners will enjoy higher rents as demand rapidly outstrips supply. “We've lost, or are losing, our rental inventory, most of which was probably built between 1995 and 2000,” says Beitsch of Real Estate Research Consultants.

That's partly because rental apartment sites are being gobbled up by condo and townhouse developers. “Landowners prefer to sell to a townhouse developer who can pay $250,000 to $300,000 per acre and who can close faster on a subdivision, rather than to an apartment developer,” says Canin of Charles Wayne Consulting.

The result has been an apartment occupancy rate that rose from 91.6% to 94.8% in the past six months, according to Canin. According to Reis, in the third quarter of 2004, the vacancy rate in the Orlando apartment market registered 7.4%, 20 basis points below the previous year. That compares with a national average of 6.6%.

The average asking rent was $777, a 3.9% rise over the previous year, compared with a national average of $874. Real estate brokerage firm Marcus & Millichap expects average rents in Orlando to rise 2.2%, to $789, in 2005.

Retail follows Rooftops

Retail development also is booming to meet the needs of a rapidly growing population. In 2003, some 28,400 residential building permits for multi- and single-family units were issued, and that pace has since accelerated. During the first 10 months of 2004, some 30,200 residential building permits were issued. The net effect in metro Orlando: 1.5 million sq. ft. of retail space should be completed in the next 12 to 18 months, according to Trammell Crow.

Open-air lifestyle centers such as Waterford Lakes, The Loop, Colonial Town Park, Baldwin Park and the Altamonte Town Center will be completed by 2005.

Pelloni Development, based in Lake Mary, is planning to break ground in January on a 23.5-acre town center in Hunter's Creek, a planned unit development in Orange County, south of Orlando. It will be built on the last commercial tract there near about 25,000 residents, says Ryan Stahl, vice president of Pelloni Development. The Town Center will feature retail, restaurants, office space, a 16-screen movie theater and a children's play area. The retailers will not be big boxes, emphasizes Stahl.

In the last year, several Orlando big-box retail sites have gone dark, mostly due to Kash n' Karry and Kmart store closings. Fifteen of the 34 Kash n' Karry closures in Florida were in the Orlando area. But their demise has created space for newer and more successful retailers, such as Wisconsin-based Kohl's.

The greatest demand for new retail is in the outer suburbs such as Clermont in Lake County and Sanford in Seminole County, says David Marks, president of Marketplace Advisors Inc., a retail consultant in Orlando. Other growth markets are in west Volusia and Polk counties, although they are outside of the official four-county Orlando market. Orange County is close to build-out, so a lot of growth there is third-generation development, says Marks. Wal-Mart, Target, CVS and Walgreens have all been aggressive in their expansion in the Orlando area.

The Mall at Millenia, a 1.2 million sq. ft. upscale mall on the edge of the tourist market, about five miles north of the Orange County Convention Center, opened in October 2002. Since then, several shopping centers along North International Drive have struggled to remain competitive.

Last summer, New Plan Excel Realty Trust, owner of The Pointe Orlando, a festival center next door to the convention center, announced a $10 million facelift. The center also suffered from an economic downturn and the loss of key tenants such as FAO Schwarz.

Because of the scarcity of land, only one 55,000 sq. ft. retail center, the upscale Shoppes at Millenia, was under construction in December 2004. The new mall is slated to open this month.

Industrial Market Gains Steam

Orlando's industrial market has recovered from its slump of the last few years. More than 2.6 million sq. ft. was absorbed during the first nine months of 2004 compared with a negative 456,099 sq. ft. for the same period in 2003, according to locally based Advantis Real Estate Services Co. Advantis tracks slightly more than 73 million sq. ft. of industrial space in Orange and Seminole counties. Of that total, slightly more than 10 million sq. ft. is flex space and the rest is bulk, manufacturing or office/warehouse space.

The industrial vacancy rate, including sublease space, registered 10.2% at the end of the third quarter, a slight improvement from the 11.4% recorded in 2003. The average rent for the Orlando industrial market was $4.75, according to Advantis. Despite a relatively high vacancy rate in industrial space, many developers are more interested in new land than in occupying existing buildings, some of which are functionally obsolete, says Lisa Rossetti, director of research at Advantis Real Estate Services Co.

But new land is in short supply in part because owners want to hold onto it. “The biggest problem [for industrial developers] in Orange County is the lack of land,” says Tom McFadden, a senior director at Advantis Real Estate Services Co.

Land prices are rapidly escalating in both Orange and Polk counties, says McFadden. What little land is available for industrial development in Orange County costs $125,000 to $150,000 an acre. Polk County industrial land is now selling for what Orange County land fetched five years ago, at $90,000 to $110,000 per acre.

Nonetheless, more than 500,000 sq. ft. of speculative industrial development was completed in Orange County in 2004, according to McFadden. But none of the land was bought recently, he says. “If you don't have land already [on which to build today],” you have a problem.”

Hortense Leon is a Miami-based writer






  1. Walt Disney World Co.
    53,000 employees

  2. 2. Florida Hospital
    14,091 employees

  3. 3. Orlando Regional Healthcare
    12,754 employees



15.1% vacancy, 3Q 2004
17.9% vacancy, 3Q 2003

Rent per sq. ft.: $18.99, 3Q 2004

Source: Advantis Real Estate Services Co.


7.4% vacancy, 3Q 2004
7.6% vacancy, 3Q 2003

Asking rent per unit: $777, 3Q 2004

Source: Reis Inc.


7.2% vacancy, 3Q 2004
9.9% vacancy, 3Q 2003

Rent per sq. ft.: $14.79, 3Q 2004

Source: CB Richard Ellis

Industrial: (Orange, Osceola and Seminole Counties)

7.4% vacancy, 3Q 2004
7.5% vacancy, 3Q 2003

Rent per sq. ft.: $3.88, 3Q 2004

Source: CB Richard Ellis


71.9% occupancy, Oct. 31,2004
62.5% occupancy, Oct. 31,2003

Source: Smith Travel Research


Premiere Trade Plaza, Two-block long project with 383,000 sq. ft. of office, 310 residential condos and 105,000 sq. ft. of retail, including a 12-screen movie theater.

Cost: $140 million

Developer: Cameron Kuhn

Completion: Third quarter of 2006

55 West on the Esplanade, 363 residential condos, 25,000 sq. ft. of office condominiums, in addition to 45,000 sq. ft. of retail

Cost: $140 million

Developer: Euro American Advisors

Completion: First quarter of 2007

The Vue at Lake Eola, 384 residential condos and 6,000 sq. ft. of retail

Cost: $85 million

Developer: Churchill Development Group/Westminster Partners

Completion: Fourth quarter of 2006

The Sanctuary, 178 residential condos, 11,500 sq. ft. of office, and 12,000 sq. ft. of retail

Cost: $60 million

Developer: Historic Creations

Completion: Second quarter of 2005

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