ORLANDO, Fla. – For one of Orlando’s barbecue kings, a lunch spot in a downtown tower next to City Hall was an easy sell: the smokey aromas lured crowds of hungry office workers every day from their cubicles to the 4 Rivers’ outpost on the south end of Orange Avenue.
When the pandemic hit in March, those office workers disappeared. And the restaurant is gone, too, just one in a string of casualties that signal the shift to working from home will leave a lasting, if not permanent, imprint on the downtown that Orlando has long tried to establish as a business and cultural hub.
“When the pandemic hit and the use of office space was compromised … then the business itself is compromised,” said 4 Rivers founder John Rivers. “I don’t believe it’s a realistic assumption that it’s going to rebound immediately.”
Data shows office vacancies, which were already high before workers were sent home to help prevent the spread of the coronavirus, have inched up even higher. A record amount of square footage is now available for sublease in Orlando’s core and across the region, such as in Lake Mary’s business district, a harbinger that companies are looking to downsize or potentially break their leases. It’s also a warning sign of more vacancies ahead in early 2021, said Brian Alford, the director of market analytics at the CoStar Group.
“We’re going to see vacancies rise all across the market, particularly in Lake Mary and downtown Orlando,” Alford said. “Then the pandemic determines if that’s for a couple of quarters … or if this thing drags out … then that would lengthen the horizon for weakening conditions.”
In downtown Orlando, 420,000 square feet of space is available for sublease, Alford said, while in Lake Mary, space for sublease has doubled in the last two months, climbing to 370,000 square feet. Throughout Metro Orlando, 1.3 million square feet of office space is available, compared with about 891,000 in fourth quarter of last year.
GrayRobinson, one of Florida’s largest law firms that has long occupied five floors in a tower on Pine Street, is in talks to sublease about a quarter of its space, or 20,000 square feet, to another company.
Dean Cannon, president of the firm and a former speaker of the Florida House, said the firm already needed less space as law libraries moved online. And now, in the wake of the pandemic, the firm surveyed its lawyers and employees and found that many liked working from home and wanted to continue some combination of home and office work in the future. That means more shared offices or other arrangements could be in the future, Cannon said.
“I think we will not need as much total square footage as we currently have,” he said. “I think some reasonable reduction in footprint makes sense for us.”
Cannon said the pandemic could lead to a reshuffling of tenants downtown, where some companies leave because of economic conditions while subleasing could allow others to move downtown from the suburbs because they can get cheaper rent prices.
“That may actually be a good thing. You may end up with a more diverse tenant mix,” he said.
Even before the virus fallout, downtown vacancies were running at a six-year high, in part because of moves such as the one SunTrust made to leave one tower to move to another.
But the long-term nature of corporate leases means it could take years to fully realize the impacts of the virus. Alford said many firms appear to be re-signing their leases, but now for the shortest term possible to maintain flexibility.
Rent growth downtown is flat year over year, below the 1.3% growth rate across the entire metro area, Alford said. While the data paints a grim picture for Orlando when comparing to its own recent history, it’s outperforming other U.S. cities.
“Orlando is going to emerge in better shape than most markets,” he said. “I think the lack of density is going to help Orlando withstand it.”
Orlando, like most cities, depends on property taxes to pay for police, fire, parks and other needs. That revenue could wane if property values take a hit, a worry Orlando Mayor Buddy Dyer has expressed in recent months.
“Whether we’re going to maintain property values, especially in the downtown area, is a concern over the next couple of years,” Dyer said in September as the City Council approved a $1.4 billion budget.
Orlando’s downtown is book-ended on its north and south sides by the sprawling campuses of two large hospital systems, which have continued to drive traffic there even during the pandemic.
But the tourism-driven town has also been crushed by mass layoffs at Walt Disney World, the region’s largest employer, as well as at Universal Orlando, SeaWorld Orlando and hotel companies like Rosen Resorts, Gaylord Palms and Hyatt. Disney alone cut about 18,000 workers in Central Florida.
The job losses have rippled through other industries, too, leaving workers like Dimitri Kopanski looking for cheaper rent.
Kopanski and his partner had moved into an apartment overlooking Lake Eola where he could walk to his job at Jerry Harvey Audio on Garland Avenue.
But soon after the pandemic struck, and concert tours, summer music festivals and other events his employer thrived on were canceled, he was laid off from his job manufacturing high-end headphones.
“If nothing had been disrupted, yeah, I was getting a lot out of (living downtown) in many ways,” he said. “For a short time, we were enjoying it.”
Left with his partner’s teacher salary and Florida’s troubled unemployment system that made it difficult for him to quickly collect unemployment insurance, the couple’s $1,700 monthly rent was too steep. When their lease expired in August, they decided to leave downtown for east Orlando near one of Valencia College’s campuses, where the rent was $600 less each month.
Before the pandemic, downtown was in the midst of a boom of new apartments.
The downtown area still has more than $2 billion in projects in the pipeline, and counts more than 18,000 residents, according to the Orlando Downtown Development Board. Just under half of the corridor’s 5,200 apartment units were built in the last five years, according to the board. Another 5,000 apartments are either under construction or proposed for downtown.
Chip Tatum, the CEO of the Apartment Association of Greater Orlando, said his agency isn’t anticipating an exodus from downtown life, even if work-from-home options remain the norm after the pandemic.
With public-sector employees at City Hall, Orange County and the courthouses, there’s a solid foundation of residents outside of private-sector workers in addition to the allure of living near venues like the Dr. Phillips Center for the Performing Arts, Amway Center and Exploria Stadium.
“But we don’t anticipate any long-term impacts from the work-from-home trend,” he said.
As tens of thousands of people have faced economic turmoil, the metro area still scored some points in the region’s long game to broaden its economy beyond tourism, said Cristal Sircy, the chief operating officer of the Orlando Economic Partnership. But the group’s chief examples occurred far outside of downtown Orlando.
The German company Lillium announced this month it would set up its first U.S. hub of electric air taxis in Lake Nona, about 20 miles southeast of downtown. The Minnesota-based SkyWater Technology is negotiating with Osceola County to take over a 40-year lease at the high-tech BRIDG and the Center for NeoVation. And Luminar Technologies, which manufactures software for autonomous vehicles near the University of Central Florida in east Orange County, went public on Nasdaq.
Rivers, the restaurateur, said a vibrant downtown is important to a community and predicted that, over time, businesses will find a way to adapt if pandemic-driven changes remain even if a successful vaccine roll-out begins to allow people to begin to fill up offices, shops and restaurant dining rooms again.
“Any thriving city needs a thriving downtown. I believe there will be some pivoting that will be happening,” Rivers said. “People and business tend to find a way to survive.”