Commercial space for rent
Some business owners across Central Florida are struggling with the cost of rent.
Orlando continues to see steady growth in retail demand, but, according to a Cushman and Wakefield MarketBeat REPORT.
But supply and demand are not the only issues. Location also affects the cost of rent, said Richard Lewin, a business professor at Rollins College. He said commercial rent starts at about $25 per square foot in downtown Orlando and Winter Park, but can be much less expensive in other areas.
“When we think about the greater Orlando area, (which is) Sanford-Orlando-Kissimmee as kind of a study area. Then we have rents that can be as low as $13-$15 per square foot, depending on the size as well,” he said.
Lewin said some landlords ask for higher rents for a location because the spaces are in high-traffic areas with greater profit potential, or a higher percentage of owners than occupiers.
“There’s a convenience fee, so to speak, of having a kind of unique location in a very special area,” Lewin said. “And that’s really been one of the main drivers of rents going forward.”
In addition to location, Lewin said many landlords are weighing the rising cost of construction in what they pay for rent.
“Whenever we’re looking at rents, we also have to look at the buy versus build analysis. If it costs more to build than to buy, then there is a good chance that someone will buy it and be able to justify the higher rent because the alternatives are much fewer and much more expensive when they come to market, he said.
Lewin adds that for small mom-and-pop businesses, the ability to grow the business can affect the price per square foot, which lowers the cost to the tenant.
“There’s not as much incentive to build more of those very small boutique-style retail offerings. We’ve seen more pop-ups and other ways to creatively address the need for smaller spaces at lower costs per square foot,” he said. “We’ve certainly filled malls with entertainment complexes and entertainment to revitalize those areas.”
Feast for hunger
According to a report from Cushman and Wakefieldthe need for space has outstripped new supply for more than 4 years.
Supply has long lead times, Lewin said, along with a lack of construction workerswhich makes it difficult to quickly add large volumes of space.
“Because of the way Orlando has developed, historically, we’re trying to fill projects, but some of them are dependent on infrastructure. Sometimes they are highways. For example, the I4 project, which acted as a bottleneck for many years, reduced the ability to bring forward some of these particular projects.”
Just as migration and population growth are impacting affordable housing, it is also impacting development, further exacerbating supply issues.
“Obviously there’s a lot of competition in Miami and Tampa, but those areas have become much more expensive, much less affordable. This has an impact on Orlando. In fact, there are some mainstream developers who probably wouldn’t have thought of Central Florida as the first stop for their development plans,” Lewin said.
Developers are considering the Orlando International Airport connection and potential Corridor of the Sunaccording to Lewin.
“And there’s some major redevelopment downtown, the packing district, the dairy district, Church Street, and integrating the existing sports facilities there, trying to make it a more integrated, welcoming, walkable environment,” he said.
Depending on whether the developer is in the private or public sector, the current state of inflation may affect their ability to build more supply.
“Private markets tend to borrow for shorter periods and do not have the direct access that equivalent public companies do. They can go into bank consortia and make much bigger loans for big projects,” Lewin said. “But with the smaller spaces, they would now have to reprice a lot of the loans that were much cheaper two or three years ago, and that will cause a decrease in the rate at which these smaller developments occur.”
Buy against Rent
Some business owners are finding ways to overcome high rental costs.
In August, the owner of Nora’s Sugar Shack in Orlando, bought the building through crowdfunding.
Buying is always a better option than renting, Lewin said, and that may be an option for some, especially if they’re in an older building.
“Institutional portfolios don’t tend to want very old buildings and properties. So often smaller private clients who have retail properties or other commercial properties can buy those smaller spaces,” he said.
However, Lewin said that once the property is purchased, there may be maintenance issues.
“What we do know is that the scale of retail sales is particularly dependent on the quality of the environment around the development. Many mainstream developers spend a lot of time ‘scene-making’ — trying to fix up the area and make the street scene look better. For individual mom-and-pop operators, it’s much harder to make an impact across the area,” he said.