MARKET SNAPSHOT: Lack of New Construction Helps When Vacancies are Increasing in Orlando, Fla.

By Erika Schnitzer, Associate EditorOrlando—The lack of new construction in the Orlando market is not such a bad thing, according to Cole Whitaker, partner at Hendricks & Partners’ Orlando office. The downturn in new construction should help a softening rental market.“We, unfortunately, are sitting here with declining rent rolls due to increased concessions, so to have very little new construction is a good thing,” he says.            Occupancy is sitting at approximately 90 percent, whereas the city normally enjoys levels of 92 percent to 95 percent, Whitaker tells MHN. While vacancies have increased only slightly, he affirms that concessions are rising. At the end of the third quarter of 2008, Orlando was seeing a half-month to a month of free rent, whereas today’s concessions are at about two months’ free and will only continue to rise.Though Orlando is lacking new construction, Whitaker says that there are still approximately 2,000 to 2,500 units currently underway—below average for Orlando, which typically sees an increase of 5,000 to 6,000 units each year.In addition, Whitaker notes that the majority of the shadow units has been absorbed and that they no longer have such a major impact on the market. “We have gone through all of 2007 and 2008 dealing with the shadow market. The units have been rented up.”Transaction-wise, Whitaker says, “there is still a disconnect between today’s requirements on equity returns and the cost of debt versus what sellers want. Sellers are coming around, but it’s very slow.” He believes there will be an increase in transactions once sellers become more realistic about market conditions. However, he says, “until the job picture takes a turn for the better, new construction will be difficult to underwrite.”Despite all of this, Whitaker remains relatively positive. “Orlando, historically during recessions, has come out on the front end on the turn, so we are hopeful that that will occur. The big question is when.”(Click here to read last week’s market snapshot on Seattle)