When an unknown buyer began taking options on swampland south and west of Orlando in 1964, some speculators figured on an expansion of the Glenn L. Martin Co. missile plant. After all, Martin was the region's largest employer, and it owned 7,300 acres nearby for test-firing munitions. The mysterious buyer turned out to be from Anaheim, Calif. — and the swampland was transformed into Walt Disney World.

The opening of the theme park in 1971 catapulted Orlando onto the international stage, while behind the scenes Martin was evolving into a major part of defense giant Lockheed Martin Co. The growth of the defense industry and supporting companies have given Orlando a well-seasoned base of technology businesses.

In May 2005, Lockheed Martin's missiles and fire control division announced plans for a $100 million expansion, including a new 250,000 sq. ft. office and research space. “That's an auto plant as far as investment in a region,” says John Fremstad, vice president for technology industry development at the Metro Orlando Economic Development Commission. “We get another generation — another 15-year run with that type of investment.”

The new building and streamlined production facilities will replace older and temporary space that the company added as it won additional work and new government contracts. Before embarking on the project, the operation on Sand Lake Road had 1.75 million sq. ft. of office and warehouse space in 42 buildings built between 1957 and 1997. The unit employs more than 5,600 workers, up from 4,126 in 2000. Military contracts linked to the operation total more than $1.3 billion.

In addition to attracting businesses to serve its needs, the defense giant is also credited as the catalyst in the establishment of the University of Central Florida, which opened, at least in part, to offer advanced degrees to Martin's engineers. With more than 45,000 students, the university is now one of the 10 biggest colleges in the nation.

Tourists spend $28 billion annually in Metro Orlando, according to data from the Orlando/Orange County Convention & Visitors Bureau. But while mouse ears and tourism dominate the south end of Orlando, technology businesses drive growth and expansion across town.

In fact, technology jobs are growing faster than tourism jobs, according to Gregory Miller, chief economist for SunTrust Banks Inc. The metro Orlando area has added technology jobs on a year-over-year basis in every quarter since mid-2003, according to U.S. Census Bureau data. The region is home to 88,891 technology jobs, up 7% from the previous 12 months, according to second-quarter 2005 data. “Permanent sorts of services are playing catch-up to seasonal tourism and construction,” says Miller.

Orlando businesses create about 40,000 new jobs every 12 months, Miller says. That has led to virtually full employment. In May, the region's unemployment rate registered a paltry 2.8% compared with a national rate of 4.7%.

Technology cluster

Regional boosters promote technology businesses to offset the low wages in the tourism and service sectors. That led to the creation of the Central Florida Research Park, a 1,027-acre, county-supported development east of Orlando near the University of Central Florida. “My primary focus is to counterbalance what Disney and Universal and SeaWorld do,” explains Joe Wallace, executive director of the park.

The research park is the heart of Orlando's university/research market. It includes the U.S. Department of Defense's training and simulation commands, which award more than $3 billion in contracts annually. Hence, military contractors are willing to pay a premium to be in the area 20 minutes east of downtown Orlando.

“In the middle of the research park, you have this 40-acre piece of federal land. All around it, you couldn't get much more of a textbook clustering effect,” Fremstad says.

Small businesses and units of large government contractors have steadily moved in, surrounding those military commands. Many are looking to land direct government work. Still others are there to secure subcontracting jobs from big military suppliers.

Full-service office rents in the research market average $20 per sq. ft., the highest leasing rate outside the core business district, according to first-quarter 2006 data from GVA Advantis. That's significant, given the fact that the research market has a vacancy rate of 19.5%, the highest in Orlando. (For more on the Central Florida Research Park, turn to p. 41.)

Software and services

Orlando's northern suburb of Lake Mary has built its own cluster of high-tech firms in financial services and software. The market recorded Orlando's highest first-quarter absorption at 136,000 sq. ft. and has the region's lowest vacancy rate at 5.4%. Of the 4.4 million sq. ft. of office space available there, 3.5 million sq. ft. is Class-A space with modern amenities.

A number of global companies develop software in Lake Mary, including financial services software maker Fiserv, call center manager Convergys Corp., and anti-virus software company Symantec.

“Not only do you get technology guys up there, you get insurance companies and health care companies,” says Greg Morrison, executive director of real estate brokerage at GVA Advantis in Orlando. “And you get good housing for executives — all the things a company likes to have to attract and keep employees.” For instance, Colonial TownPark, a mixed-use development by Birmingham, Ala.-based Colonial Properties Trust, is home to a 65,000 sq. ft. office of Hartford Insurance and Bank of New York, which leases 52,000 sq. ft.

The bulk of the office towers in Lake Mary, however, have been built since 1999 by three owners — Colonial Properties, Crescent Resources and Duke Realty. Colonial owns about one-third of the Lake Mary submarket.

“All the land is basically gone or in the hands of developers,” says George Livingston, founder and chairman of Orlando real estate firm NAI Realvest. In addition to its own projects, Crescent is in the early stages of a 170,000 sq. ft. build-to-suit office building that will be the headquarters of the Central Florida Educators' Federal Credit Union.

Many buyers, few sellers

Across Orlando, property owners are slow to sell. “Nobody's in a big hurry to get out of anything,” Morrison says. Despite the reluctance, record-setting sale prices provide a compelling argument. Sale prices topped $151.99 per sq. ft. in the second quarter of 2006, up from $88 per sq. ft. three years ago, according to CB Richard Ellis. If the rest of the year follows suit, that will lead to a record high.

Taurus Southern Investments LLC, which builds mostly office and light industrial flex space, has been selling properties it developed in the Central Florida Research Park to institutional buyers. Jeff McFadden, Orlando managing partner for Taurus, predicts that high construction costs will put a damper on new development, which will lead to higher rents, and justify higher sale prices.

“Reproduction cost is really supporting and justifying the prices that we sold product for,” says McFadden. “Buyers who paid $160 to $190 per sq. ft. for quality single-story product there are going to be fine because you're not going to see a lot of new product delivered.”

Tampa-based Opus South Corp. just finished leasing a pair of buildings near the research park and university, and plans to start on a third before the end of the year. The newly leased buildings are the first two phases of a four-phase project on the drawing board. They represent 228,170 sq. ft. and were built for about $16 million each, or $129 per sq. ft. in 1999 and $152 per sq. ft. in 2003.

Opus South aims to start on its third tower, Corporate Center Three, before the year ends, but construction costs could delay the 103,996 sq. ft. building, says Jerry Shaw, a senior vice president for Opus. “Building costs have gone up dramatically,” he says. “No one's seen costs like Florida.” Opus is projecting a minimum $160 per sq. ft., or $16.6 million.

With costs squeezing the construction pipeline, but not Florida's job growth, existing properties command a premium. “We don't have a lot to sell, but if we did, we could sell it easily,” Shaw says. “I'm not aware of a lot of good properties for sale.”

Logistics trumps manufacturing

What property is for sale is going to require rehabilitation. Orlando's failed venture into high-tech manufacturing has led to one of the region's biggest redevelopment opportunities.

High-tech manufacturing, localized in Orlando's south and southwest industrial areas, took a fatal blow after the telecom downturn in 2001. AT&T spin-off company Agere Systems Inc. put its 1.1 million sq. ft. microchip plant up for sale in spring 2002. The plant closed in October 2005 after Agere spent three years seeking a buyer for the high-tech factory. At its peak, the plant employed 1,800. Now it likely faces demolition.

“Their facility was built for a special purpose and doesn't adapt easily,” says David Murphy, an Orlando industrial real estate broker with CB Richard Ellis. Murphy predicts the Agere site will be rehabbed into a combination of industrial, office and retail uses, perhaps by a major regional developer.

Livingston of NAI Realvest notes that Florida-based Flagler Development Corp. has successfully built up nearby acreage and would be a sensible buyer. Whoever is the buyer, the one-time high-tech jewel likely will be sold for land value minus demolition costs, Murphy predicts.

Where manufacturing died, logistics has thrived. Six miles south on the same road as the dormant chip plant, home improvement chain Lowe's built its first Florida distribution site in 2003. The $73 million, 1.3 million sq. ft. development, in Osceola County's Poinciana Industrial District, is attracting other logistics businesses seeking a Florida hub.

“Our industrial market is the strongest it's been in 10 years,” Murphy says. That's because of the same things that caught Walt Disney's attention 40 years ago: The city is situated in the middle of the state, where two major highways, Interstate 4 and Florida's Turnpike, intersect.

Industrial vacancy rates are approaching 5% — half the national average, according to CB Richard Ellis. In the first half of 2006, newcomers have leased up more than 2 million sq. ft.

Murphy predicts that strong demand, coupled with a shortage of land zoned for industrial use, will lead to higher lease rates for Orlando industrial properties, and a very active selling season.

Medical technology

In spite of scarcity, the city still has one quadrant of mostly raw land ready for development just east of Orlando International Airport. In the 1980s, 2,700 acres were zoned for industrial development, including 20 million sq. ft. of space, but no market developed.

In 2008, the University of Central Florida plans to open a $114 million medical school and related research facilities dubbed Innovation Way. That effort is bolstered by the new medical school, new road extensions from the airport to the university's main campus, and a 7,000-acre mixed-use development by the Tavistock Group called Lake Nona near the airport.

On the drawing board, Innovation Way would keep 8 million sq. ft. of industrial space and set aside 3 million sq. ft. for a second research park, privately owned but supported and regulated by the county's research agency. Grosse Pointe, based in Fort Myers, is the developer.

GVA's Morrison says plans for Innovation Way and the nearby Lake Nona development remind him of Lake Mary in the mid-1990s. “You can just see that it's going to take off, and when it does it's going to be pretty dramatic.”

The privately owned Tavistock Group donated 50 acres for the medical school campus. Construction on the first of two medical school buildings, a 133,000 sq. ft. building with an estimated cost of $42 million, begins in January. The second building is scheduled to be a $40 million, 120,000 sq. ft. project.

As roadwork begins on what is to become Innovation Way, Orlando economic boosters have embarked on a battle for the first satellite office of the Burnham Institute, a California medical research firm. Burnham picked the state and then asked cities to put together proposals for its East Coast office, and is set to make a decision this summer. “We're a technology town,” says Fremstad of the economic development commission. “People are starting to take notice.”

Chad Eric Watt is a Dallas-based writer.

ORLANDO - BY THE NUMBERS

METRO POPULATION: 1.9 million
Source: U.S. Census Bureau

UNEMPLOYMENT RATE: 2.8%
Source: Workforce Central Florida

LARGEST EMPLOYERS:

  1. Walt Disney World
    53,800 employees
  2. Florida Hospital
    19,270 employees
  3. Wal-Mart Stores Inc.
    16,757 employees
  4. Publix Super Markets Inc.
    15,606 employees


Source: Metro Orlando Economic Development Commission

METRO AREA VITAL SIGNS

Office:

11.3% vacancy, 1Q 2006

13.1% vacancy, 1Q 2005

$19.81 rent per sq. ft., 1Q 2006

$19.01 rent per sq. ft., 1Q 2005

Source: GVA Advantis

Multifamily:

4% vacancy, 1Q 2006

5.2% vacancy, 1Q 2005

$838 avg. effective rent, 1Q 2006

$767 avg. effective rent, 1Q 2005

Source: Cushman & Wakefield

Retail:

7.9% vacancy, 1Q 2006

6.5% vacancy, 1Q 2005

$16.00 rent per sq. ft., 1Q 2006

$15.40 rent per sq. ft., 1Q 2005

Source: CB Richard Ellis

Industrial:

7.4% vacancy, 1Q 2006

11.8% vacancy, 1Q 2005

$5.93 rent per sq. ft., 1Q 2006

$4.49 rent per sq. ft., 1Q 2005

Source: GVA Advantis

Hotel:

67.2% occupancy, May 2006

68.3% occupancy, May 2005

$99.74 average daily rate, May 2006

$94.02 average daily rate, May 2005

Source: Smith Travel Research

MAJOR PROJECTS:

Dynetech Centre, at 111 N. Magnolia Ave. in downtown Orlando, is a 32-story, 160,000 sq. ft. mixed-use tower. It will include ground-level retail, eight levels of parking, seven floors of office and 17 floors of rental apartments.

Cost: $80 million

Developer: Dynetech Corp. and Lincoln Property Co.

Completion: Fall 2007

The Blue Rose, at 7575 Universal Blvd., is a planned hotel-condominium project with five towers and 1,552 units. Furnished condo-hotel units are priced starting at $300,000. The 34- and 39-floor towers will sit atop an eight-story complex of restaurant, retail and meeting space.

Cost: $500 million

Developer: Cohen Meunier & Aguirre Development Group

Completion: Late 2008

Central Florida Research Park comes of age

The headquarters building of the Naval Air Warfare Training Systems Division in Orlando was designed in the late 1980s to resemble a ship at sea. The grass berms around the 281,000 sq. ft. building were shaped like waves to create a sense of motion.

But when builders completed the Navy building in 1988, it encountered a lonely existence at the Central Florida Research Park, a 1,027-acre development 22 miles east of downtown Orlando.

“There were no tenants that wanted to be there, and it was cheap,” recalls Jeff McFadden managing partner of Taurus Southern Investments LLC. At the time, McFadden persuaded Taurus to pay $3.6 million for three buildings in foreclosure. The buildings contained 87,000 sq. ft. of office space. Ten years later, Taurus sold the buildings for $16 million.

Today, the park's military researchers award $3 billion in contracts annually. That figure is growing, and so is the crowd of businesses that want to be near the decision-makers. “Most people assume they're Pentagon-based, but they're Orlando-based,” says John Fremstad, vice president for technology industry development at the Metro Orlando Economic Development Commission.

Today, the park is home to 53 buildings, 3.2 million sq. ft. of office and light industrial space and 117 companies. SAIC Inc., a San Diego-based military integration specialist, is building a second building and doubling its workforce at the research park to 800.

Northrop Grumman Corp., a defense contractor, plans to add about 150 engineers to its 3,000-person Central Florida headcount, and Saab Training LLC, a unit of the automaker that specializes in tank simulators, has made Orlando its headquarters.

In the first quarter of 2006, tenants absorbed 100,000 sq. ft. of space in the park, which also has 631,000 sq. ft. of office in the construction pipeline.

The Alter Group of Chicago has a 56,000 sq. ft. office building under construction set for completion in November. Benderson Development, based in Southwest Florida, has long-range plans for two 25,000 sq. ft. buildings inside the research park. In June, Crescent Resources LLC of Charlotte revealed plans to build a speculative 150,000 sq. ft. building.

Taurus completed the first phase of a four-building, 300,000 sq. ft. project last fall, now close to 75% occupancy. The tenants are mostly tech firms from other parts of Orlando getting closer to the Defense Department hub. McFadden expects to start on the second building by the end of 2006. “Happily,” he says, “not a one of them came out of the research park, so there's no cannibalism.”
Chad Eric Watt