Commercial real-estate pros are looking to the quarterly reports these days to help determine whether office condominiums are affecting the much-larger rental market.

So far, they're finding hints but no answers.
 

Recent research by Advantis Commercial Real Estate Services in Orlando, which examined both rental and condo offices, found that condo space totaled just 4 percent of the market, or 1.17 million square feet, in the first quarter.

But another 1 million square feet or more was under construction or in the planning stage, according to the survey, which included buildings with at least 20,000 square feet of space. While that clearly indicates rapid growth, experts said, what's not clear is whether owning, rather than renting, office space will continue to appeal more to smaller businesses than to larger ones.

The greatest concentration of office-condo space in Central Florida these days is in downtown Orlando. The largest such project yet undertaken in the market -- the two-tower Premiere Trade Plaza at Orange Avenue and Church Street -- will add nearly 400,000 square feet of office condos in the city center when the complex opens this fall.

The area's existing condo offices were 21 percent vacant during the first quarter, according to the Advantis report, compared with an 11.3 percent vacancy rate for the rental market. First-quarter rental rates ranged from $17 to $28 a square foot, while condo-office space was selling for $160 to $315 a square foot.

Steve Coughlin, an office specialist with Cushman & Wakefield in Orlando, said condo-office sales may slow as interest rates continue to rise and take borrowing costs with them.

"We've had clients consider buying, then decide to rent," he said.

Cushman & Wakefield's second-quarter market survey, which focused on office space for rent, showed steady improvement for area landlords, with vacancy rates shrinking and rents rising.

The overall market's vacancy rate dropped from 11.2 percent in the first quarter to 10.5 percent in the second.

Scott Bell, an office specialist with Carter & Associates in Orlando, said local submarkets such as Maitland and Lake Mary that were hit last year with a glut of vacant space are now quickly strengthening.

Incentives, such as free rent for one to three months, are about gone from the market. "You might find some in Maitland Center, but there's not much out there," Bell said.

CB Richard Ellis' second-quarter survey found that "large blocks of office space over 40,000 square feet are not available."

Jeff Sweeney, president of Grubb & Ellis/Commercial Florida, sees rents rising steadily this year, perhaps as much as 15 percent.

"Recently, we've seen more built-to-suit office development than speculative development, and that tends to keep vacancies low and pressure on rents to increase," he said.

The Cushman & Wakefield survey found that, during the first half of this year, the average rent rose 22 cents a square foot to a marketwide average of $20.28 a square foot.

One reason construction has been slow to respond, Sweeney said, is the soaring cost of putting up a new building. But he predicted new construction will increase as demand for space rises.

He noted that Central Florida's economy continues to thrive, with strong job growth that translates into a need for more office space.

Jack Snyder can be reached at 407-420-5094 or jsnyder@orlandosentinel.com.