Page Contents
Overview
- Resilient Consumer Spending: Orlando’s retail market has remained strong amidst economic challenges, with consumer spending staying robust as inflation declines, thereby enhancing purchasing power.
- Low Vacancy with Anticipated Increase: The current vacancy rate stands at a low 3.8%, with expectations of a moderate rise due to over 700,000 square feet of retail space anticipated by late 2023.
- Expansion into New Areas: Retail development in Orlando is reaching into previously overlooked peripheral areas, fostering growth in regions like Kissimmee and Osceola County and attracting new homeowners.
- Attraction of Out-of-State Brands: Florida’s strong in-migration and consumer spending are drawing out-of-state retail and restaurant brands, such as Velocity Esports, to Orlando, indicating a diversifying market.
- Above-Average Rent Growth: Retail rent growth in Orlando has surpassed national averages since 2015. Although expected to moderate, it will likely maintain the market’s competitive appeal.
- Investor Interest Remains High: Investors continue to show a keen interest in Orlando’s retail market, motivated by its potential for demand growth and property appreciation, evidenced by record retail sales in 2022 and a strong start in 2023.
- Challenges of Rising Capital Costs: Despite the positive trends, the market faces challenges from rising capital costs, which have yet to deter the strong start in 2023, indicating resilience and potential for sustained growth.
Leasing Trends in Orlando’s Retail Sector
Resilience Amidst Economic Challenges
Decreasing vacancy rates, rising rents, and healthy net absorption are showing signs of strength in Orlando’s retail market.
A growing population and a resilient economy bolstered by strong consumer spending drives retail demand in Orlando. The city’s thriving tourism sector contributes to consistent foot traffic in key retail areas. Despite national retail sector challenges like inflation and supply chain delays, Decreasing vacancy rates, rising rents, and healthy net absorption are showing signs of strength in Orlando’s retail market.
Vacancy and Leasing Dynamics
Experts expect Orlando’s retail vacancy rate to stabilize between 4% and 5% by the end of 2023. This rate is slightly lower than the national average, notable given Orlando’s significant leisure and hospitality sector. With limited sublease space and a scarcity of larger-box vacancies, the market is tightening, reflecting robust demand.
Recent Leasing Activity
Brisk Leasing and Emerging Trends
Leasing activity in Orlando has been vigorous, with significant transactions in the past year. Most leasing occurs in urban-suburban and suburban areas, with a focus on home goods, groceries, fitness centers, and discount stores. Notable tenants include American Freight, Burlington, and Walgreens, with large deals also signed by BJs Wholesale Club and Costco.
Restaurant and Retail Expansion
The Orlando market is attracting diverse restaurant concepts and retail expansions. New entrants and expanding businesses include Aussie Grill, Dutch Bros, and various California-based concepts. These new ventures are drawn by Florida’s business-friendly climate and Orlando’s dense population and sophisticated consumer base, offering fertile ground for chef-driven and specialty concepts.
Rent Trends in Orlando’s Retail Market
Robust Growth in Retail Rents
Orlando’s strong economic fundamentals, driven by solid consumer spending, have catalyzed a rapid increase in retail rents. Over the past year, asking rents in Orlando have surged by 6.8%, significantly outpacing the national average growth of 3.5%. With an average asking rent of $27.89/SF, Orlando stands well above the national rate of $24.29/SF. This remarkable growth has positioned Orlando third nationally in year-over-year rent growth as of March 2023, trailing only Jacksonville and Fort Lauderdale, with Tampa closely following.
Across-the-Board Rent Increases
All retail categories in Orlando, including malls, have experienced rising market rents. Despite changing consumer preferences and the challenges enclosed shopping centers face, these properties are being considered for adaptive reuse, leveraging their prime locations and extensive parking facilities. This trend aligns with the growing influence of e-commerce in the retail sector.
Submarket Performance
Leading Submarkets in Rent Growth
In the Orlando metro area, several submarkets are outperforming the average in terms of asking rents and annual rent growth. Notably, the Sanford, Maitland, and University areas are witnessing the fastest rent growth rates. These submarkets exemplify the dynamic nature of Orlando’s retail landscape, reflecting the city’s evolving economic and consumer patterns.
Construction Trends in Orlando’s Retail Sector
Steady Construction Activity
Despite a relatively restrained pace, Orlando’s retail construction activity has been robust enough to rank the city 9th in the U.S. for total retail space under construction as of the second quarter of 2023. This activity reflects the ongoing demand driven by Orlando’s steady population growth and the consequent need for additional retail spaces.
Growth and Key Projects
Orlando’s retail inventory has expanded by approximately 8% over the last decade. Currently, there are significant projects underway, adding 2.0 million SF of new space on top of 
1.1 million SF delivered in the previous year. This expansion, however, is balanced by 1.2 million SF of net absorption in the same period. The new construction represents only a 1.3% expansion of the total market inventory, indicating a disciplined approach by developers. Orlando also stands second in Florida for the amount of new retail space under construction, following Miami.
Notable Developments
Emerging Retail Hotspots
Although large-scale retail projects are limited, developers are actively planning or initiating several significant developments, especially in the SW Orange Outlying and Osceola Outlying submarkets. Noteworthy is the WaterStar Orlando project by Equinox Development, which includes both commercial/retail and multifamily components. Tenants like Lazy Dog Restaurant & Bar and Portillo’s Hot Dogs are part of this project. Poinciana Lakes Plaza in Osceola County is another significant development, nearly fully leased and featuring prominent tenants like T.J. Maxx and ULTA Beauty.
Ambitious Mixed-Use Projects
The Everest Group of Companies is planning the $1 billion Everest Place resort, a mixed-use project featuring retail, office, and residential spaces. Additionally, the redevelopment of the Formosa Gardens Shopping Center by George Chen includes transforming a vacant grocery store into a food hall, event space, and a craft brewery, with Orlando Brewing Co. relocating to this center.
Expanding Retail Footprints
Plans for a new Floor & Decor store in Apopka, Northwest Orange County, align with the area’s growth, particularly with the upcoming Floridian Town Center. This mixed-use development will encompass a wide range of components, including retail, restaurants, hotels, and residential units, further underscoring the dynamic nature of Orlando’s retail construction trends.
Sales Trends in Orlando’s Retail Market
Strong Investment Volume
Orlando’s retail investment landscape has remained robust over the past year, buoyed by solid economic fundamentals and sustained investor confidence in Central Florida. The market witnessed 460 retail sales, accumulating a total transaction volume of $1.3 billion over the trailing 12-month period. The year 2022 saw a significant uptick in sales volume, surpassing the previous year’s record-setting performance with a more than 25% increase despite a decrease in the number of sales. Over eight million SF of retail properties changed hands, featuring an average capitalization (cap) rate of 6%, and sale prices generally fell short of list prices by about 7%.
Buyer and Seller Dynamics
Private buyers dominated the market, accounting for nearly 75% of all retail sales in the past year. Prominent buyers included Orion Real Estate Group, CORE Investment Properties Fund, Publix Super Markets, and AEW Capital Management. On the selling front, Walgreens Boots Alliance and Unicorp National Developments, Inc. were among the leading participants.
Notable Transactions
Key Sales in the Market
One of the most significant transactions occurred in July 2022, with Orion Real Estate Group’s acquisition of the Millenia Plaza power center in the Orlando Central Park submarket for $74.1 million, or approximately $180/SF. This two-property center, totaling roughly 410,000 SF, is anchored by major national retailers and enjoys a prime location near the upscale Mall at Millenia with excellent visibility from Interstate 4.
Another noteworthy sale was the March 2023 purchase of the newly built WaterStar Orlando retail project in Kissimmee’s West Hwy 192 corridor. Equinox Development sold this project for $28.4 million ($357/SF) shortly after its completion, anchoring it with Marshall’s, pOpshelf, and Burlington, significantly enhancing the area’s retail landscape.
Final Thoughts
In conclusion, our exploration of Orlando’s retail market reveals a landscape of resilience, growth, and opportunity. From robust rent increases to dynamic construction trends and vigorous sales activity, Orlando stands as a beacon of potential in the retail sector. For comprehensive commercial real estate insights and strategic guidance in navigating this vibrant market, contact Lumicre. Our expertise is your asset in unlocking the full potential of Orlando’s retail opportunities.