Transitioning to a Landlord’s Market
During the fourth quarter, Florida surpassed New York as the nation’s third most populous state. Tampa Bay’s unemployment continued to drop down to 5.8%, and businesses were growing and expanding throughout the region. As a result, Tampa Bay’s office market was significantly stronger with a notable uptick in activity following the November elections. Business confidence was up, leading to an increase in decision-making regarding real estate transactions, including office investment sales. Leasing activity remained very active, with Tampa Bay’s most popular office submarkets shifting to a landlord’s market.
- iQor announced it would move its international HQ from NY to downtown St. Petersburg’s One Progress Plaza and would retain and create over 100 high wage jobs.
- Threat Track has moved its 28,000 SF office from downtown Clearwater to sign a lease at 311 Park Place Boulevard located in the Bayside Submarket bringing the building’s occupancy rate up to 95%.
- A joint venture consisting of affiliates of Feldman Equities, Tower Realty Partners and Second City Real Estate, has acquired First Central Tower, a 17-story, 250,000 square foot office building located at 360 Central Avenue in downtown St. Petersburg.
VACANCY & ABSORPTION
The overall vacancy in Tampa Bay’s office market fell to 16.2%, as compared to 16.9% in the third quarter. The St. Petersburg CBD submarket had the area’s lowest reported vacancy at 10.8%. Tampa Bay’s office market experienced a total net absorption of 419,475 square feet, with the Westshore submarket reporting the most absorption of 147,792 square feet.
Demand for Class A product remained strong, even with rental rates on the rise. Class B product was also in demand, particularly in buildings with large floor plate availabilities, as few large blocks of space remain available.
In Hillsborough County, the Tampa CBD and Westshore office submarkets were very strong as well as Downtown St. Petersburg, and the Gateway submarket in Pinellas County. Meanwhile, the office markets in the East Tampa, Northwest Tampa and North Pinellas submarkets improved, although at a slower pace than the more popular areas. As a sign of optimism five office users were seeking space in East Tampa each requiring between 20,000 and 75,000 square feet of space.
Technology, engineering, law firms, healthcare, staffing and financial services tenants were some of the most active. Activity remains sluggish for on-campus medical tenants, as technology is allowing medical groups to place doctors and services closer to consumers. Vacancies are increasing near hospitals as small group medical practices are consolidating with larger practices.
Tampa Bay’s overall average asking rental rate was $19.56 per square foot with the Westshore submarket continuing to command the region’s highest average asking rate at $24 per square foot.
Some Class A properties in Westshore Pushed their asking rental rates to $32 per square foot, with several additional properties asking above the $30 per square foot threshold. Class A and Class B buildings in downtown Tampa and St. Petersburg, Westshore and Gateway submarkets have raised asking rental rates in the past six months by 50 cents to $2 per square foot. This improvement was driven by increased demand, higher occupancy and tenant improvements.
In general, concessions offered on office leases in Tampa Bay continued to tighten. Free rent is minimal; tenant improvement allowances were based on the tenant’s credit, lease term, and the square feet occupied.
Tampa Bay office investment sales were active with ample capital available for financing and low interest rates. In addition to the significant sales transactions listed, several notable office properties were sold in Tampa Bay. Morning Calm Management sold Rivergate Tower, located at 400 N Ashley Drive to New York-based Mount Kellett Capital Management, LP, for over $59.5 million. Interventure Capital Group sold the Corporate Center I, II and III office buildings in the Westshore submarket to Parkway Properties for $238 million as a part of a larger portfolio sale of 22 Southeast office properties.
A predicted side effect of strong building sales and increased occupancy, we can expect is a gradual rise in property taxes at recently traded assets and will eventually affect comparable buildings. While this rise may take a few years to play out, the cost will ultimately be passed on to the tenants and will increase the overall cost of occupancy.
In development news, Highwoods Property broke ground on a 176,000 square foot building to accommodate the Laser Spine Institute’s new headquarters and ambulatory surgery center in Avion Park, in the Westshore district. The expansion from their current location on Rocky Point will allow the addition of 100 new jobs. The $56 million project is expected to be completed in the first quarter of 2016. 3300 Florida, LLC also broke ground on a 72,000 square foot office building for DS Services of America Inc. on County Line Road. Anticipated delivery is the third quarter of 2015.