Orlando's Hot Industrial Market

Industrial Paradise

Orlando is the heart of Florida. Main roadways such as I-4, I-75, and the Florida Turnpike act as arteries to the rest of the state, making it possible to reach over 20 million people within a six-hour drive. The ample accessibility has attracted many businesses, investors, and developers. Significant developments, such as the 1.7 million-square-foot I-4 Logistics Park, usually get all the attention. But according to Rafael Mendez, CCIM & Regional Managing Director of SVN Ralston Dantzler, the small-bay industrial market is red hot and should not be overlooked.?

Theme parks and sunshine drew new residents to Orlando, but the new residents attracted outside businesses. On average, 1,500 new residents move to Central Florida per week. As a result, Mendez has seen an uptick in out-of-state companies such as electricians, HVAC, and construction moving to the Orlando market. In addition, industrial-using industries such as trade, transportation, and utilities saw employment growth of 20,500 jobs last year. Local companies are also expanding; the problem is an insufficient supply of small-bay inventory and hardly any development on the horizon.?

Vacancy levels are at record lows, averaging 3% for 2022. Some submarkets have no inventory; West Orange/Lake Nona recorded 0% vacancy. As a result, rents have climbed from $9/SF NNN to $12/SF - $15/SF in under three years. Last year's leasing activity decreased slightly from the 2021 peak but reached 6.7M square feet. The wavering economic conditions have also increased investment demand, as industrial is usually considered as a safer investment. On the sales side, prices have gone from $118/SF to $169/SF over six months and will continue to climb as demand remains strong.

Owner-occupier, is it time to Buy or Rent??

Light industrial offers the most flexible zoning, attracting a variety of tenants. Mendez mentions how his tenants vary from call centers to dance studios. With rents generally below office and retail, industrial provides an excellent option for many businesses. Elevated asset and rental levels have increased the challenge for small businesses. The decision to buy or rent should be based on the business's time horizon for that space. If the business plans to stay for over ten years, Mendez suggests buying. The company will then be able to build equity in the asset, utilize depreciation for tax breaks, and most likely see appreciation over time. Unused space can be leased and provide an opportunity for cash flow. The more appropriate option for smaller businesses or a shorter time horizon would be to rent. Industrial rent is still relatively below retail and office, and there isn't a considerable upfront capital cost. Smaller businesses will be able to utilize that capital to grow their business.?

Industry Advocacy?

According to the National Association of REALTOR's 2018 Commercial Member Profile, the average commercial real estate professional is over 60 years old, a caucasian male, and has 20 years or more of experience. Being of Hispanic descent, Rafael Mendez CCIM did not see this as a barrier to entry. On the contrary, he saw this as an opportunity when he first entered the industry. Since then, he has been promoted to Managing Director and has earned his CCIM designation. He has taken it upon himself to spread commercial real estate education and industry awareness to minority groups and college students within his local community. Even though the industry is growing, it is still widely unfamiliar to many individuals. The opportunities are endless, from investment sales to construction and property management. Mendez takes pride in his culture and hopes to encourage more individuals to join this fantastic industry.?

Re:Cap Key Takeaway

The Florida industrial market has been setting record numbers for a number of years now and will continue to perform as our population increases. Thank's to the help of Orlando's growth and industrial expertise by Mendez's team, there were named SVN's top brokerage team of 2022. Orlando and the Lakeland area are well on their way to establishing themselves as the main distribution hub for Florida. Long term, we expect industrial assets here to outperform major markets.

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