1. OfficeResearch
M A R K E T O V E R V I E W
Orlando Metro Area Third Quarter 2012
Some Areas Shine, but Tepid Job Growth Hinders Recovery
Limited hiring and expansions by tenants kept the Orlando office market in low gear during the first half, and only minor
changes to property operations will occur over the remainder of 2012. Leasing momentum and tenant demand slowed in the first
half, overshadowing some otherwise positive trends in the metro. Sales of single-family homes are recovering, and tourism and the
hotel sector have also come back vigorously. In fact, several office leases this year were signed by leisure and hospitality firms, in-
cluding a 100,500-square foot commitment by Disney. Despite these positive events, job growth has not picked up sufficiently to
drive a significant level of office space absorption, maintaining vacancy above 17 percent. In the three years prior to the recession,
an average 2,800 jobs were added monthly, but only an average 500 positions have been added each month in the three years since
the downturn concluded. As a result of minimal job growth this year, only slight changes in vacancy and restrained rent growth
will occur over the next several quarters.
As the second half of 2012 proceeds, many investors are waiting for the jolt that catapults property operations into a full-
bore recovery. The market will break out of its current state once more meaningful job growth and tenant expansions resume. In
2004 and 2005, for example, the addition of more than 100,000 positions helped slash vacancy nearly 600 basis points. In the
meantime, the valuation of multi-tenant office properties will prove challenging amid short-term leases and tepid demand, leaving
investors to increasingly seek assets that do not face potential declines in near-term occupancy. Generally, multi-tenant properties
with a few stable tenants trade at cap rates in the low- to mid-8 percent range, but can drop lower for Downtown assets and farther
still for quality single-tenant properties. Assets that do not fit in this box will trade at around 9 percent, and most investors con-
tinue to show an unwillingness to bid too aggressively. Investors in distressed assets also continue to comb the market, although a
modest gap between buyers’ and sellers’ expectations persists.
2012 Annual Office Forecast
1.0% Employment: Continuing restraint among employers will limit growth in payrolls to 1 percent,
increase in or 10,000 jobs, in 2012. New hires totaled 13,100 workers in 2011. Office using employment will
total
employment grow by 2,700 jobs, a 1.1 percent increase, but a decline from 4,200 new positions last year.
300,000 Construction: Developers will place in service 300,000 square feet of space in 2012, a slight de-
square feet cline from 309,000 square feet completed last year. Deliveries averaged about 638,000 square foot
will be
completed annually in the five years leading up to the recession.
20 basis Vacancy: Vacancy will decline 20 basis points to 17.1 percent in 2012 as a limited number of
point tenants expand during the second half of the year. The rate increased 10 basis points in 2011 and
decrease in
vacancy remains well above the reading of 10.9 percent at the start of the recession.
0.3% Rents: Tepid space demand will support only a 0.3 percent increase in asking rents this year to
increase in $21.12 per square foot after no change was registered in 2011. Effective rents will advance 0.8
asking
rents percent to $16.82 per square foot.

2. Economy
■ Total employment in the metro grew 0.3 percent, or by 2,600 positions in the
first half of 2012, down from a gain of 7,500 jobs in the final six months last year.
Employment Trends
6% Nonfarm Although job growth was subdued, hiring was consistent, with payrolls expand-
Office-Using ing in five of the first six months of this year.
Year-over-Year Change
3%
■ A statewide economic recovery and Orlando’s stature as the state’s key distribu-
0% tion hub supported the hiring of 2,500 trade, transportation and utilities workers.
Hospitality has a sizable corporate presence in the metro, and some office-using
-3% jobs were included among the 3,100 leisure and hospitality positions created. Also,
construction employment was flat, providing a respite from five consecutive years
-6% of job cuts.
08 09 10 11 12*
■ Office-using employment sectors did not fare well in the first half. The government
sector, a large user of leased space, cut 900 workers, while professional and busi-
ness services shrunk by 600 positions. Roughly 200 financial activities posts were
added, however.
■ Outlook: Lingering uncertainty will encourage employers to restrain hiring this
year. Total employment will expand by 10,000 jobs.
Office Construction Trends Construction
Completions
2
Absorption ■ Thus far in 2012, 134,000 square feet of competitive space has come online.
Approximately 338,000 square feet was completed in the past year, marking an
Millions of Square Feet
1
increase from 105,000 square feet in the preceding 12-month span.
0
■ The 100,000-square foot for-lease portion of the Majesty Building in Altamonte
-1 Springs started construction well before the recession. Work on the property con-
tinues to progress toward a scheduled delivery in the fourth quarter. The property
-2 includes 200,000 square feet of owner-occupied space.
08 09 10 11 12*
■ Approximately 4.7 million square feet is planned in the market, representing about
14 percent of existing stock. No start dates have been established for any of the
projects amid soft operations and difficulty financing construction.
■ Outlook: In 2012, developers will complete 300,000 square feet of space, expand-
ing competitive stock 0.9 percent.
Vacancy
Vacancy Rate Trends ■ Slack demand in the first two quarters yielded a 10-basis point rise in vacancy
20% Metro Area
United States
to 17.4 percent. Less than 80,000 square feet was absorbed in that time, marking
a decline from 200,000 square feet in the third and fourth quarters last year.
18%
Vacancy Rate
■ In the Class A segment, vacancy was unchanged in the first half at 15.6 percent on
16%
net absorption of 112,000 square feet. Lack of demand from new tenants and few
expansions from existing office-users have held Class A vacancy in the 15 percent
14%
range for the past 10 quarters.
12%
08 09 10 11 12* ■ Vacancy in the Class B/C tier rose 20 basis points in the first half to 19.1 percent
behind negative net absorption of 44,000 square feet. Net absorption of 53,000
square feet cut vacancy 30 basis points in the second half of 2011.
■ Outlook: An improvement in demand will push down vacancy 20 basis points
this year to 17.1 percent. Net absorption will total more than 300,000 square feet.
* Forecast
page 2 Marcus & Millichap ◆ Office Research Report

3. Rents
■ Asking rents lost ground in the first half of the year, declining 0.3 percent to
$20.99 per square foot. As a result, average asking rents in the market are 5 per-
Rent Trends
cent less than their peak level before the economic downturn. 8% Asking Rent
Effective Rent
Year-over-Year Change
■ Effective rents dipped in the second quarter and are down 0.3 percent from year- 4%
end 2011 to $16.64 per square foot. Concessions eased modestly to 20.7 percent
of asking rents in the first half, but remain above the 15.2 percent of asking rents 0%
in place at the start of the recession.
-4%
■ Despite an increase in occupied space, average asking rents in the Class A segment
fell 0.7 percent to $23.39 per square foot during the first six months of this year. -8%
08 09 10 11 12*
Overall, asking rents in the upper tier are 5 percent less than their previous high
point. The Class B/C sector fared slightly better, ending the first half of 2012 un-
changed at $18.61 per square foot.
■ Outlook: During 2012, asking rents will rise 0.3 percent to $21.12 per square
foot. Effective rents will add 0.8 percent to end the year at $16.82 per square foot.
Sales Trends**
■ High vacancy in many submarkets and sluggish leasing momentum dampened
investment activity over the past year, resulting in a 10 percent drop in transac- Sales Trends
tion velocity. Activity among small, private buyers in the $1 million to $10 mil- $220
Median Price per Square Foot
lion range was unchanged, however.
$190
■ In deals executed over the past 12 months, the median price was $111 per square
$160
foot, approximately 30 percent less than the median price in the prior period. Sales
of distressed properties contributed to the decrease in the median price.
$130
■ Across the market, cap rates start at about 8 percent for solid properties Down- $100
town. Otherwise, most Class B and Class C assets will trade at cap rates of approxi- 08 09 10 11 12**
mately 9 percent.
■ Outlook: Lower purchase prices will enable investors to reset rents at lower market
rates and realize an appreciation in value as additional tenants emerge to backfill
vacant spaces in the market.
Medical Office
■ No medical office properties were delivered in the first half of 2012 and none
were completed all of last year. In addition, no properties are under construc- Medical Office Vacancy
Metro Area
tion and only a 45,000-square foot building in Poinciana is planned. 20%
United States
■ Without competition from new supply, even slight increases in demand will re- 17%
Vacancy Rate
duce the vacancy rate. So far this year, tenants have occupied an additional 69,000
14%
square feet, slashing vacancy 130 basis points to 13.9 percent. Since the vacancy
rate peaked in mid-2010, an additional 192,000 square feet was absorbed by new
11%
and expanding medical practices in the metro.
8%
■ Leases for only 40,000 square feet of space were signed in the first two quarters of 08 09 10 11 12***
2012. However, nearly all of the commitments by tenants thus far in 2012 were
move-ins, not renewals.
* Forecast
** Trailing 12-Month Period
■ Trades of medical office properties eased slightly over the past year. Top proper- ***As of 2Q 2012
ties commanded prices in excess of $300 per square foot, but most assets changed Sources: Marcus & Millichap Research Services,
hands in the $150 per square foot range. CoStar Group, Inc., Real Capital Analytics
Marcus & Millichap ◆ Office Research Report page 3

4. Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
■ The FOMC announced after its August meeting that it would take no new steps
to improve the economy before September. The Fed has pledged to maintain its
lending rate near zero through at least late 2014 and has also amassed a portfolio
of long-term U.S. Treasurys in an attempt to hold down long-term rates. In fact,
Alan L. Pontius the Fed expanded “Operation Twist” by $267 million during June of this year.
Senior Vice President, Managing Director
National Office and Industrial Properties Group ■ In general, lenders continue to be discriminating. Banks remain a source of rela-
Tel: (415) 963-3000 tively low-leverage financing for acquisitions of multi-tenant properties, and will
apontius@marcusmillichap.com also underwrite deals for three- and five-year terms. Life companies are focused
on quality assets in primary markets, while conduit lenders are more apt to loan
on lesser-quality properties in primary, secondary and, in some instances, tertiary
markets. Additionally, smaller, owner-user purchases are often funded using SBA
7A and 504 loans.
■ Ten-year loans are available at rates in the mid-4 percent range, or roughly 250 ba-
sis points to 300 basis points above the U.S. Treasury. The rate on the benchmark
10-year U.S. Treasury hovered in the mid- to high-1 percent range throughout the
second quarter and into the summer. DSCs start at 1.25x, with repayment sched-
ules of 25 years and LTVs of up to 70 percent available.
Submarket Overview
■ In Altamonte Springs, the second phase of the owner-occupied Adventist Health
System headquarters, measuring 200,000 square feet, was under way at midyear
and on track for delivery in early 2013. The 155,000-square foot first phase came
online at the end of 2011.
■ All of the medical office space absorbed in the first half was in Orange County,
where the vacancy rate plunged 180 basis points to 10.1 percent, the lowest level in
nearly four years. No significant changes in occupied space were recorded in Lake,
Osceola and Seminole counties in the first two quarters.
Prepared and edited by
Art Gering ■ Approximately 1.4 million less square feet of Class B/C stock was occupied in the
Senior Analyst
Research Services second quarter than at the start of the recession. The deficit totals 312,000 square
feet in the Winter Park submarket, marking a 25 percent drop in occupancy, but
For information on national
office trends, contact
the East/UCF submarket posted a small gain.
John Chang
Vice President, Research Services
Tel: (602) 687-6700
john.chang@marcusmillichap.com
Orlando Office: Submarket Vacancy Ranking
Richard Matricaria Vacancy Y-O-Y Basis Effective Y-O-Y
Regional Manager
rmatricaria@marcusmillichap.com
Rank Submarket Rate Point Change Rents % Change
300 South Orange Avenue 1 Sanford 12.7% -20 $16.28 -1.4%
Suite 700
2 Maitland 13.4% -110 $16.66 -0.5%
Orlando, Florida 32801
3 Kissimmee 16.1% -20 $17.34 2.6%
Tel: (407) 557-3800
4 Northwest Orlando 17.2% -60 $14.98 3.2%
Fax: (407) 557-3810
5 Winter Park 17.2% 10 $15.85 1.4%
6 South Orlando 17.3% -130 $15.50 0.4%
Price: $150
7 East/UCF 17.7% 60 $14.80 -0.3%
8 Downtown 21.5% 220 $20.83 0.0%
© Marcus & Millichap 2012
www.MarcusMillichap.com 9 Altamonte Springs/Casselberry 27.2% -40 $12.06 0.4%
Notes: Employment growth is calculated using seasonally adjusted quarterly averages. Construction, rent and vacancy figures exclude build-to-suit, flex space and medical office properties unless otherwise noted.
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to
the accuracy or reliability of the information contained herein. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, Real Capital Analytics, Reis, Torto Wheaton Research Services.