Multiple obstacles to office demand have been affecting occupancies for the last year, but there is one potential tailwind that could help spur leasing activity.

Florida Senate Bill 50 will go into effect on June 1, 2024, effectively leading to a nearly 50% decline in the commercial lease tax. The decline will not apply to any fees or tax at the local level, which vary in Florida between 0.5% and 1.5%, according to law firm Holland & Knight.

Florida is one of the only states in the U.S. that assesses sales tax on commercial leases of real property. Prior to 2021, Florida was also one of a handful of states that didn’t require out-of-state retailers to collect sales tax, giving online sellers a competitive edge. As the pandemic was still in its early stages, consumers flocked to online retailers to obtain needed goods, putting brick-and-mortar stores at a disadvantage.

Like most Americans, Floridians were hard-hit by the pandemic, and many who had been gainfully employed found themselves suddenly out of work. From February 2020 to April 2020 alone, Florida lost nearly 1.2 million non-farm jobs, or more than 13%, and all but 1.9% of them were in the private sector. It was a historic level of unemployment, and claims were largely concentrated in Miami-Dade, Broward (Fort Lauderdale), and Orange (Orlando) Counties.

Unemployment in Florida reached as high as 22.3% in May 2020 and remained in the double digits for six straight months, largely depleting the state’s Unemployment Compensation Trust Fund. Florida Senate Bill 50 was implemented partially to replenish the fund, stipulating that it would decline to 2% once it had risen back to pre-COVID-19 levels.

That has now happened, and landlords and brokerage professionals are eager to see if reducing the commercial lease tax to 2% spurs more deal activity. The bill will impact office, retail, warehouse, and self-storage leases when it declines from 4.5% to 2.0%, with local discretionary taxes then added. Orlando’s office market stands to gain considerably from this change as its vacancy rate has risen by 220 basis points in the last year, and the forecast calls for a weak rate of absorption in the second half of 2024.