Pandemic made mix of real estate winners, losers
There’s no easy way to sum up the impact COVID19 had on Central Florida’s real estate industry. When Orange County Mayor Jerry Demings issued the county’s first mandatory stay-at-home order a year ago on March 24, the reverberations could be felt immediately throughout every sector of the industry as much of the economy shut down.
The next 12 months would reveal the pandemic’s winners and losers, as the recovery and reopening were anything but even. Office workers set up shop at home, forcing a monumental shift in demand for permanent office space. While residential and industrial development thrived, traditional retail and hospitality-dependent businesses found themselves in a year-long funk.
All of Orlando’s major theme parks shut down in mid-March, even before Demings’ official order. In April, Universal announced an indefinite pause on construction at the new Epic Universe theme park, by far the largest project in the entire region. This month, parent company Comcast announced it was resuming work on the multibillion-dollar development.
In August, Demings and the County Commission halted work on the more than $600 million expansion of the Orange County Convention Center.
Orlando’s Central Business District suffered, too. According to JLL’s year-end report, the pandemic caused a glut of office space in the downtown core as demand dropped by roughly 26% year-over-year. Class-A was hit the hardest, contributing 71% of the total change in vacancy.
Downtown Development Board Executive Director Thomas Chatmon said the pandemic created unprecedented uncertainties. “There have been some delays, slowing of the momentum of projects moving forward,” he said. “We don’t seem to have had many casualties, so far as development projects.”
In Creative Village, construction commenced on the EA Sports $62 million headquarters building and on the Mill Creek Residential’s 292-unit Modera apartment building. The Orlando Magic also broke ground on their new $70 million training facility, which also features a sports medicine clinic by AdventHealth.
Some of downtown’s highest-profile projects appear to have been put on a shelf.
The Magic’s $500 million Sports + Entertainment District was projected to start construction last year but is delayed indefinitely. The master plan was redesigned in late 2019 to more than double the amount of office space from 200,000 square feet to 420,000 square feet, and to add more hotel rooms and retail space.
Lincoln Property Company delivered its SunTrust Plaza at Church Street Station, fully leased in 2020. It was the first new office tower built downtown in over a decade. But plans to break ground last spring on a second mixed-use tower, with a hotel and another 210,500 square feet of office space are on hiatus.
Franklin Street’s Yvonne Baker told GrowthSpotter large corporate users throughout the Orlando market canceled leases or gave back hundreds of thousands of square feet.
“When you have huge pockets like that, you can’t justify building a new building,” she said.
Rick Colon, director of capital markets for Cushman & Wakefield, has suggested that office fundamentals for the Orlando market will recover, but perhaps not to pre-pandemic levels.
“You know, so to me, this was always going to be a trend that was going to take a little bit of time for us to fully understand,” he said during a recent panel discussion. “I think the general consensus really from institutions is that the physical office is going to continue to play a very vital role in the lives of employees going forward.”
Homebuilders scramble
When the economy shut down in March 2020, Central Florida homebuilders began preparing for another prolonged recession mirroring the great recession of a decade before. Instead, they got a boomerang
market that surged beyond anyone’s wildest estimate.
“March and April were incredibly scary — just the uncertainty,” Avex Homes President Eric Marks said. “We saw our sales drop 75% in the second quarter.”
Chassity Vega, executive director of the Greater Orlando Builders Association, said the early days of the pandemic felt like PTSD for much of the industry, especially before state and local leaders deemed homebuilders an essential industry. Much of the selling process went virtual, including home tours via FaceTime, drive-thru closings and online design studios.
“During that two-three week time period, we really had to pivot the whole industry toward how to build and sell homes in a pandemic. In my opinion, we did it well,” Vega said.
The combination of low-interest rates, workfrom-home transition economy and migration patterns drove demand for existing and new homes in and around Orlando while builders worked at a frenzied-like pace to add new supply.
“Look to the middle of the pandemic, where Florida is somewhat open, in a sense, compared to places like California and New York — and even South Florida — and all of a sudden the demand to live in Central Florida has significantly increased,” Vega said.
Vega said many local builders shifted their business model to add more speculative homes “because buyers wanted quick sales” and because that way they can factor in the higher lumber and materials cost into the final sale price.
A tale of growth and busts
Local retail experts told GrowthSpotter they believe the pandemic accelerated the prevalence of outdoor seating, online shopping, curbside pick-up and other forms of delivery and carryout options for retail and restaurant businesses.
“All of those things we knew were coming or we expected to see phased in over time … It was much closer to switch being flipped,” Justin Greider, senior vice president and Florida retail lead at JLL. “[The pandemic] excelled all of the trends we were talking about 18 months ago.”
In the restaurant business, large chains and retail developers are betting last year’s reliance on takeout meals will stick around after the pandemic.
Fast-casual spins on Applebee’s and Outback are expanding throughout the Sunbelt. Earlier this year, Wawa opened its first pick-up window in Philadelphia, and Chipotle is in the midst of rolling out more restaurants with drivethrus.
So far, throughout Central Florida, “Chipotlane” concepts will be in Kissimmee, Winter Springs, Casselberry and by the University of Central Florida. In January, Shake Shack announced it would open its first restaurant with drive-thru lanes at Vineland Pointe.
“Now your most valuable retail centers need to have some drive-thru components,” Gregg Hill, president of Oviedo-based Hill Gray Seven, said. “The drivethru is critical, and I would
say it’s going to get harder to lease up inline space.”
Even dine-in restaurants are establishing pick-upand-go areas, he adds.
Both Greider and Hill agree, new retail development will be of a smaller scale than before, and will primarily take place close to where people are living in neighboring communities, instead of large regional destinations.
Unicorp Development’s Celebration Pointe project was delayed when Dave & Buster’s pulled out and the project had to be redesigned for a new grocery anchor. Maitland-based Equinox Development Properties recently downsized the retail square footage of its planned WaterStar Orlando town center in the Four Corners area of Orange County, giving up nearly 100,000 square feet of retail to build a second apartment complex.
“The era of the millionsquare-foot shopping center is over,” Hill said.
Industrial market shines
At the start of his career, CBRE’s David Murphy said it was impossible to separate the symbiotic relationship between tourism in Orlando and its economy. Much of his business revolved around firms looking to occupy warehouse space in Central Florida that may service the theme parks and attractions in the tourism corridor.
“The initial thought I had during the pandemic was: If they close down the attractions and close down the convention center, the industrial sector is going to collapse,” he said.
But that didn’t happen. Experts told GrowthSpotter that Metro Orlando’s steady population growth, along with a sharp increase in online shopping and push for shorter delivery times, helped propel more e-commerce tenants to enter the market.
“We saw an immediate impact in the amount of tenants looking for space within a month of the start of the pandemic,” Murphy said. “We were receiving more calls from users that were trying to adjust their supply chain to fit the demand they were seeing.”
Murphy estimates every billion-dollar increase of e-commerce, creates a demand for an additional 1.25 million square feet of industrial product.
Distribution hubs and warehouse facilities for companies like Amazon, Goya Foods, Universal Studios Orlando and the Coca-Cola Company have recently set up shop in Apopka.
Amazon is also taking occupancy of 561,750 square feet at Air Commerce Park in southeast Orange County, along with Sprouts Natural Market, which is building out a 134,500-square-foot distribution center at the industrial park.
“There are several large national developers that want to enter the Orlando market [but] it’s getting people to accept the right offers,” Khan said. “Finding the right circumstance to get that deal is going to take work.”