Colliers International, Tampa Bay – Overall, activity in Tampa Bay’s office market increased during the first quarter, with rental rates inching upward and as did sustained interest from office asset investors. The general rise in the U.S. economy and strong job growth in Florida and Tampa Bay were key drivers in the positive momentum seen in the region’s office market during the first quarter.
While the Tampa and St. Petersburg CDBs have been very popular submarkets for office tenants in recent quarters, the shortage of available, nearby parking in these areas began to influence tenant decision-making.
Tampa and St. Petersburg continue to be cities where employees drive to work; if landlords cannot offer ample parking, Tenants are reluctant to lease space in CBD buildings, especially with no new parking decks planned or under construction. This is likely to slow office users’ resurgence in the CBDs and may drive leasing in the suburbs where adequate parking is available. As office space becomes denser with employee population, the need for added parking becomes a large contributor to the cooling of CBD demand.
Vacancy & Absorption
During the first quarter, the overall vacancy in Tampa Bay’s office market fell to 15.8%, as compared to 16.3% in the fourth quarter. The St. Petersburg CBD submarket had the area’s lowest reported vacancy, at 10.3%. Tampa Bay’s office market experienced a healthy total net absorption of 355,419 square feet, with the Westshore submarket reporting the most absorption during the fourth quarter, 241,158 square feet.
In Hillsborough County, leasing in Tampa’s CBD and Westshore office submarkets remained active and East Tampa and North Pinellas submarkets saw improvement, although at a slower rate than the more popular submarkets, i.e. Westshore and Tampa CBD.
As the market experiences positive growth in all areas – absorption, occupancy rates, asking rates – larger blocks of contiguous office space continued to dwindle. In Hillsborough County during the first quarter, 26 spaces remain available between 25,000 and 50,000 square feet – six of these spaces are available in the Westshore submarket. Dwindling further, only 11 buildings are able to accommodate users requiring space larger than 50,000 square feet – four of these are located in Westshore. Provided the market continues this positive growth, the possibility of a new building breaking ground this calendar year increases.
Technology, law firms and healthcare tenants were some of the most active in the Tampa Bay office market. It is anticipated this trend will continue for healthcare providers as their business strategy is often to relocate closer to their patients’ homes. REITs continue to recognize medical office properties as a stable asset class and have become increasingly active investors in this product type. Cap rates compressed for medical office properties of all sizes and types during the first quarter, with single-tenant sale cap rates approaching 6% for assets with strong-credit medical users/tenants.
At long last, during the first quarter, Tampa Bay’s most active office submarkets appear to have finally crossed the threshold from a tenant’s market to a landlord’s market. As a result, property owners have taken full advantage to push asking rates – with increases as much as $2-$3 higher over the last four quarters – in downtown Tampa and St. Petersburg, as well as in the Westshore and Rocky Point areas.
Tampa Bay’s overall market average asking rate is $19.92/rsf (Class A=$24.64) during the first quarter, with the Westshore submarket continuing to command the market’s highest average asking rate, at $24.41/rsf (Class A=$27.67). Additionally, concessions decreasing with free rent averaging less than 1/2 month free rent per each lease year. As a result, some tenants are willing to pay a slightly higher rental rate to secure an offer including free rent which assists them with moving costs, network cabling and furniture purchases.
Another positive reflection of a strong market was very few buildings were reporting existing tenants reducing their office space; on the contrary, tenants in the market were far more apt to expand. Pinellas County is experiencing significant activity in the 20,000 to 100,000 square foot tenant category, with at least a dozen users of this size in the market seeking space.
Sales & Development
Investor interest in purchasing office buildings remained high, as interest rates continued to remain at low levels. REITs, large institutional owners, private capital buyers, local investors backed by sophisticated capital partners, and foreign entities all expressed interest in Tampa Bay’s office market during the first quarter. Anchor Realty Partners, LLC, purchased Wittner Centre West for $4,575,000. KAS Central LLC sold the 67,418 square foot office building, located at 5999 Central Avenue in St. Petersburg, for $67.68 per square foot. In addition, several office assets in Pinellas County came to the market in the first quarter or are expected to hit the market for sale in the very near future.
In the Gateway submarket in Pinellas County, Echelon City Center – a mixed-use office, hotel and retail development – was formally proposed in St. Petersburg. The project would include two office towers – one 20 stories comprising 225,000 square feet and the other 22 stories comprising 275,000 square feet. The owner is currently preleasing space, seeking a large tenant to kick off the project.