WORLD PROPERTY CHANNEL ®

Orlando's retail market isn't in for a banner year, according to a new report by Encino, CA-based Marcus & Millichap Real Estate Services.

The California brokerage predicts retail vacancy will decline and rents will inch up modestly this year in Orlando as the local tourist trade recovers and employers expand.

Despite the most significant job growth in any 12-month stretch in four years, retail operations have only slightly recovered thus far, lacking an appreciable rise in tenant demand.

Store closures totaled about 2.7 million square feet over the past year, down from 4.7 million square feet in the preceding 12 months, but substantial numbers of new tenants have not yet emerged.

Retailers such as the Aldi grocery chain have opened new stores and continue to scout locations, but many others remain cautious regarding expansion, a stance that will limit near-term vacancy improvement.

"As a result, extremely low completions, not a robust recovery in demand, will contribute most to the projected decline in Orlando vacancy this year," the report finds. . Limited completions will persist beyond 2011 as housing starts remain low and many national retailers scale back footprints.

Multi-tenant property investment has recovered, with more deals executed over the past 12 months than in any year-long period since the recession started.

Access to financing, however, remains an impediment to restoring greater liquidity in the market. Lenders will finance acquisitions of newer, well-located shopping centers, where strong investor demand persists and properties anchored by top grocery chains can command cap rates in the mid-7 percent range.

Other assets in lower-visibility locations or with weaker anchors and in-line tenants typically demand higher equity commitments from the limited number of lenders willing to underwrite deals.

As a result, investors require higher first-year returns on these assets, with cap rates often starting in the mid- to high-8 percent range. In addition to the recent surge in shopping center transactions, demand for single-tenant, net-leased product remains keen.

"Properties with national brand affiliations represented two-thirds of all deals executed in the metro over the past year, and a large pool of buyers executing low-risk strategies will sustain intense bidding in the months ahead," according to Marcus & Millichap. 

---