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3rd Quarter 2023 Tampa Bay Office Market Report and Q4 Forecast

Important Highlights:

Tampa Bay:

Office Market:

  • Majority of activity and demand has been focused on Westshore and Central Business District (CBD) vs the suburbs which is consistent with the flight to quality trend by Tenants.
  • Class A buildings made up of over 60% plus of leasing activity in Q3 over the suburban areas.
  • Asking rents in Class A Buildings have increased by +/-6%
  • Direct asking rents are up 1% and Class A and B building in the Westshore and CBD areas for the third quarter in a row.
  • Vacancy rate in Tampa CBD is 13% and Westshore in 18%.

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $33.50 Sq. Ft. $37.01 Sq. Ft.
Downtown Tampa $40.00 Sq. Ft. $41.80 Sq. Ft.
Northwest Tampa $26.75 Sq. Ft. $27.90 Sq. Ft.
South Tampa $34.50 Sq. Ft. N/A
I-75 Corridor $26.50 Sq. Ft. $27.50 Sq. Ft.
Downtown St. Petersburg $33.40 Sq. Ft. $36.00 Sq. Ft.

Building Highlights:

  • Gas Worx: Ybor City real estate investor Darryl Shaw’s Gas Worx is a mixed-use development remaking older industrial and vacant properties between Ybor and the Channel District into a walkable area. The first phase, including 317 apartments and retail space, began construction in October and is set to open in spring 2024. A second apartment community with 370 apartments and retail will begin construction later in 2023. At full build-out, Gas Worx is planned to have nearly 5,000 residences, 140,000 square feet of retail, and 500,000 square feet of office space.
  • Ybor Harbor: Adjacent to Gas Worx, Darryl Shaw has unveiled plans for Ybor Harbor, a 33-acre mixed-use waterfront development on Ybor Channel south of Adamo Drive. The project aims to connect Ybor to the Channel District and downtown and will include up to six million square feet of residential, office, hotel, and retail space. Plans also include the development of a public area with piers, boat slips, green space, and a boardwalk lined with restaurants and shops.
  • Tampa’s Riverfront: The development boom along downtown Tampa’s riverfront continues, with projects like the 31-story luxury apartment tower Arts and Entertainment Residences and the Pendry Residences Tampa luxury riverfront hotel and condominium tower. The Tampa Convention Center is also undergoing a $38 million expansion, adding new waterfront meeting and event rooms.

2023 4th Quarter Forecast:

  • Labor Market and Economic Indicators: The tight labor market is expected to remain steady, with the unemployment rate likely to be around 3.2%, similar to the previous quarter.
  • Job Creation: Tampa Bay is anticipated to continue as a front-runner in job creation across the state, contributing to further employment growth.
  • Supply: Overall vacancy rates are projected to remain low
  • Demand: Leasing is expected to be steady into fourth quarter with majority in focused in CBD and Westshore in Class A and Trophy buildings.

What does this mean for Tenants?

Advantages:

  • Increased rent concessions from Landlords: Higher Tenant Improvement allowance towards build outs and providing free rent to decrease overall lease value.
  • Favorable Economic Indicators: The low unemployment rate and steady job growth in Tampa Bay suggest a thriving economy. For Tenants, this means a potentially larger customer base and a higher likelihood of finding qualified employees in the area.
  • Sublease Options: Sublease options can provide favorable for Tenants who prefer a shorter lease term and below market rent especially for those looking for 10,000 RSF and up.

Challenges:

  • Turn Key Options: Construction costs are still record high and the lack of turn key “Spec Spaces” Landlords have available for Tenant’s who require immediate move can require Tenant’s to lease Suites do not provide the desired layout for Tenants.
  • Lead Time: Having timelines with buffer built in will give margin for continued slow construction timelines, for architectural drawings, permit approvals and supply chain issues.

What does this mean for Landlords?

Opportunities:

  • Low Vacancy Rates For Smaller Suites: Suites under 5,000 SF and under spaces are being leased quickly.
  • Turn Key and Spec Suites: Having turn key Suites under 5,000 SF for Tenants to quickly move into will provide a competitive advantage over other vacant competing Suites for Tenants who do not have enough lead time for long construction timelines.

Considerations:

  • Tenant Selection: Ensuring that potential Tenants have a strong financial standing and align with the property’s intended use can help minimize risks associated with tenant turnover or payment issues.
  • Tenant Retention: Attracting new Tenants is essential and Landlords should also prioritize Tenant retention. Historically, it is more cost effective to maintain a Tenant then marketing, leasing and Tenant Improvement costs to acquire a new Tenant. Maintaining positive Landlord-Tenant relationships and providing excellent customer service can help ensure Tenants choose to renew their leases, reducing turnover and associated costs.
  • Building Location: If buildings are located in Suburban areas outside of CBD and Westshore will have to be more aggressive with Concessions and adjusting asking rent.
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2nd Quarter 2023 Tampa Bay Office Market Report and Q3 Forecast

Important Highlights:

Tampa Bay:

  • The metro area’s unemployment rate has reached an impressive low of 3.1% compared to the 3.5% national average. Companies have benefited from steady employment gains, particularly in sectors such as professional and business services, witnessing a remarkable increase of 4.9%, and information services, which experienced an impressive job growth rate of 7.7%
  • The addition of 30,898 jobs, indicating a notable job growth rate of 1.2%
  • Forbes’ named Tampa Bay as the 2nd best city for Young Entrepreneurs and the second emerging tech hub, further bolstering its appeal and contributing to the city’s economic prosperity.
  • KPMG ranked Tampa Bay as the 3rd most cost-friendly U.S. business location
  • Tampa Bay’s business-friendly environment and promising opportunities continue to make it an attractive destination for companies seeking to establish and expand their presence on a global scale.

Office Market:

  • Asking rents in Class A Buildings have increased by +/-9%
  • Vacancy has increased since the pandemic in 202o from +/- 10% to 14%,  however, Q1 and Q2 of 2023 have remained the same.
  • The region’s expanding population and thriving job market have played pivotal roles in attracting numerous companies to move to Tampa in recent times and thus limiting vacancy rates compared to other comparable cities.
  • Available sublease space has grown by over 90% but interesting to not the majority of the available sublease spaces are 10,000 SF and up.

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $33.50 Sq. Ft.  $37.01 Sq. Ft.
Downtown Tampa $33.75 Sq. Ft. $36.00 Sq. Ft.
Northwest Tampa $24.25 Sq. Ft. $26.50 Sq. Ft.
South Tampa $21.00 Sq. Ft. N/A
I-75 Corridor $24.25 Sq. Ft. $27.12 Sq. Ft.
Downtown St. Petersburg $31.50 Sq. Ft. $35.85 Sq. Ft.

Building Highlights: 

  • Gas Worx: Ybor City real estate investor Darryl Shaw’s Gas Worx is a mixed-use development remaking older industrial and vacant properties between Ybor and the Channel District into a walkable area. The first phase, including 317 apartments and retail space, began construction in October and is set to open in spring 2024. A second apartment community with 370 apartments and retail will begin construction later in 2023. At full build-out, Gas Worx is planned to have nearly 5,000 residences, 140,000 square feet of retail, and 500,000 square feet of office space.
  • Ybor Harbor: Adjacent to Gas Worx, Darryl Shaw has unveiled plans for Ybor Harbor, a 33-acre mixed-use waterfront development on Ybor Channel south of Adamo Drive. The project aims to connect Ybor to the Channel District and downtown and will include up to six million square feet of residential, office, hotel, and retail space. Plans also include the development of a public area with piers, boat slips, green space, and a boardwalk lined with restaurants and shops.
  • Tampa’s Riverfront: The development boom along downtown Tampa’s riverfront continues, with projects like the 31-story luxury apartment tower Arts and Entertainment Residences and the Pendry Residences Tampa luxury riverfront hotel and condominium tower. The Tampa Convention Center is also undergoing a $38 million expansion, adding new waterfront meeting and event rooms.

2023 3rd Quarter Forecast:

  • Labor Market: The tight labor market is expected to remain steady, with the unemployment rate likely to be around 2.7%, similar to the previous quarter.
  • Job Creation: Tampa Bay is anticipated to continue as a front-runner in job creation across the state, contributing to further employment growth. Nonagricultural employment is expected to see a continued increase, which could positively impact the demand for office spaces.
  • Supply: Overall vacancy rates are projected to remain low, with a slight decrease from the previous quarter, potentially reaching around 4.4%. However, the amount of vacant sublease products on the market may continue to rise as companies adjust their space needs following the pandemic’s e-commerce boom.
  • Demand: Leasing activity is expected to show improvement compared to Q2, with an increase in new deals signed during the 3rd quarter. Positive net absorption is likely to continue, indicating a healthy demand for commercial properties in the region.
  • Economic Indicators: The Tampa Bay MSA’s unemployment rate is likely to remain at around 2.7%, which is significantly lower than the national rate of 3.6%. Employment is anticipated to continue growing in the region.

What does this mean for Tenants?

Advantages:

  • Increased rent concessions from Landlords: Landlord’s are more flexible on asking face rates, Tenant Improvement allowance and more likely to provide free rent to offset cumulative lease values. 
  • Positive Net Absorption: The market is experiencing positive net absorption, indicating that more space is being leased than vacated. This could signify a healthy and growing business environment, attracting a diverse range of companies to the region.
  • Favorable Economic Indicators: The low unemployment rate and steady job growth in Tampa Bay suggest a thriving economy. For Tenants, this means a potentially larger customer base and a higher likelihood of finding qualified employees in the area.
  • Sublease Options: More sublease options can be favorable for Tenants who prefer a shorter lease term and below market rent. 

Challenges:

  • Turn Key Options: Construction costs are still record high and the lack of turn key “Spec spaces” Landlords have available for Tenant’s who require immediate move can require Tenant’s to lease Suites do not provide the desired layout for Tenants. 
  • Sublease Market: The rise in vacant sublease products on the market could be both an advantage and a challenge for Tenants. On one hand, it provides additional options for space, potentially at a more affordable rate and shorter lease term. Subleasing comes with its own set of considerations, being subject to already agreed upon lease terms, conditions and possible constraints.

What does this mean for Landlords?

Opportunities:

  • Low Vacancy Rates For Smaller Suites: Suites under 5,000 SF and under spaces are being leased quickly.
  • Turn Key and Spec Suites: Having turn key Suites under 5,000 SF for Tenants to quickly move into will provide a competitive advantage over other vacant competing Suites for Tenants who do not have enough lead time for long construction timelines.
  • Positive Net Absorption: The positive net absorption in the market signals a healthy and growing tenant base. As more businesses seek space in the region, Landlords can expect sustained interest in their properties and a potential increase in leasing activity.

Considerations:

  • Tenant Selection: Ensuring that potential Tenants have a strong financial standing and align with the property’s intended use can help minimize risks associated with tenant turnover or payment issues.
  • Sublease Market: The increase in vacant sublease products could impact the overall leasing market. Landlords should be aware of sublease offerings in their area and assess how it may affect their property’s marketability and leasing rates.
  • Market Saturation: As demand remains strong, there may be increased development activity in certain areas. Landlords should be mindful of potential market saturation, which could lead to heightened competition and a potential impact on rental rates.
  • Tenant Retention: While attracting new Tenants is essential, Landlords should also prioritize Tenant retention. Historically, it is more cost effective to maintain a Tenant then marketing, leasing and Tenant Improvement costs to acquire a new Tenant. Maintaining positive Landlord-Tenant relationships and providing excellent customer service can help ensure Tenants choose to renew their leases, reducing turnover and associated costs.
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1st Quarter 2023 Tampa Bay Office Market Report and Q2 Forecast

white and blue concrete building under blue sky during daytime

Important Highlights:

Tampa Bay:

Tampa Bay’s commercial real estate market is thriving, with a strong demand for office space, particularly in the downtown area. The growing population and job market in Tampa have contributed to the demand for office space, and many companies have relocated to the area in recent years. According to Forbes Tampa is ranked the number one city for small businesses and the number two emerging tech hub. 

  • Pinellas County
    • Industrial vacancy rate is 3.2%
    • $12.62 SF NNN flex/warehouse
    • $7.86 SF NN warehouse distribution
    • 258,068 SF under construction
  • Hillsborough County
    • Industrial vacancy rate is 5.2%
    • $13.98 SF NNN flex/warehouse is $13.98 SF
    • $7.04 SF NNN for warehouse distribution
    • 2,772,283 SF under construction

Office Market:

  • $35.40 PSF Class A Average
  • The direct asking rents for Class A Buildings. up Approx. 3.9% year-over-year
  • Vacancy rate got Class A Buildings is Approx. 10%
  • Turn-key spec office spaces that are move-in ready for companies with pressing deadlines continue to be in demand who do not have the time to wait for permitting and construction timelines. 

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.05 Sq. Ft.  $38.51 Sq. Ft.
Downtown Tampa $29.19 Sq. Ft. $31.95 Sq. Ft.
Northwest Tampa $27.65 Sq. Ft. $27.79 Sq. Ft.
South Tampa $21.00 Sq. Ft. N/A
I-75 Corridor $26.78 Sq. Ft. $26.99 Sq. Ft.
Downtown St. Petersburg $32.19 Sq. Ft. $31.55 Sq. Ft.

Building Highlights: 

  • Mixed-use developments continue to be at the forefront of new construction.
  • “Miami-based Related Group purchased 6 acres on the west bank of the Hillsborough River — what will become the Riverfront district. 
  • Ybor City developer Darryl Shaw is assembling roughly 25 acres of closely watched waterfront land along the Ybor Channel.
  • Strategic Property Partners, the developer of Water Street Tampa, has demolished the former Ardent Mills flour plant between the Channel district and downtown Tampa to make way for Water Street’s second phase.” Read more of the upcoming developments here. 

2023 2nd Quarter Forecast:

  • To sustain teamwork, camaraderie, and creative collisions, companies may adopt flexible schedules based on personnel who operate in the same teams or departments. 
  • Tampa Bay will continue to see out-of-state businesses migrate and expand to the area, and demand for under 5,000 SF office space could remain high.
  • The primary concern was the blurring of boundaries between home and work. As a consequence, throughout 2022, there was a gradual rise in the number of professionals opting for a partial return to the office, which persisted consistently month after month.

What does this mean for Tenants?

  • Tenants should evaluate what is the best long-term solution for their company, considering the well-being of the company and the possibility of a hybrid, remote, or in-office job. While vacancy rates in Tampa remain low, landlords may offer rent abatement and increased Tenant Improvement allowances due to high construction costs.
  • Tenants who delay office space matters until the last minute will find themselves at a disadvantage, with few alternatives and minimal, if any, leverage for negotiating based on construction timelines and competing availability.

What does this mean for Landlords?

  • Landlords must consider increasing Tenant Improvement allowances for construction expenses to provide basic building standards and Tenant-specific finishing to compete for the right Tenants.
  • Profit margins may be impacted by inflation, but increased rents and 3-4% annual increases can aid in the impact of inflation. Providing turn-key spec office spaces that are move-in ready for companies with pressing deadlines can help capture tenants.
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The basics you must know about a Triple Net Lease

Triple Net Lease, also known as NNN lease, is a commercial real estate lease in which the Tenant is responsible for paying for all or some of the property’s Operating Expenses or sometimes called, Common Area Maintenance. These expenses can include property taxes, insurance, maintenance for common areas costs. In a Triple Net lease, the Tenant not only pays rent but also assumes financial responsibility for the upkeep and maintenance of the property. This type of lease is common in commercial real estate, particularly in retail and warehouse spaces and less likely to come across in office space. 

Benefits of Triple Net Leases For Landlords

Landlords can easily project their income stream, as the Tenant is responsible for the expenses associated with the property. There can be years when Real Estate Taxes and Insurance increase, those increased amounts can be passed directly to the Tenants.  Landlords can use this predictable income stream to secure financing for additional real estate investments or to reinvest in the property itself. Tenants being responsible for maintaining the property, Landlords can minimize their involvement in the day-to-day management of the property.

Disadvantages of Triple Net Leases For Landlords

If the Tenant fails to pay for expenses such as property taxes or insurance, the Landlord may have to cover those costs, leading to financial losses. Furthermore, if the Tenant is responsible for maintenance, the Landlord may not be aware of issues that arise, leading to potential property damage that could reduce the property’s value.

Benefits of Triple Net Leases For Tenants

Triple Net leases can provide more control over the property and potentially lower costs since they are responsible for maintenance and repairs by choosing which vendors to use or update themselves. Additionally, since Tenants have more control over the property’s upkeep, they can customize the space to fit their specific needs. This can be particularly advantageous for businesses with unique requirements, such as medical offices or laboratories.

Disadvantages of Triple Net Leases For Tenants

Tenants should also be aware of the potential downsides of Triple Net leases. If the property requires significant maintenance or repairs, the Tenant may be responsible for substantial expenses. Property Taxes and Insurance can fluctuate and subsequently may face higher costs if Property values or Insurance rates increase.

Triple Net leases can benefit Landlords and Tenants. Landlords can secure a stable income stream and minimize their involvement in property management, while Tenants can have more control over the property and potentially lower costs. It is essential for both parties to understand the potential downsides of triple net leases, such as financial risks and increased expenses. As with any real estate transaction, it is crucial to carefully review and negotiate the lease terms to ensure a mutually beneficial arrangement.

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4th Quarter 2022 Tampa Bay Office Market Report and Q1 Forecast

Important Highlights:

Tampa Bay:

  • Hillsborough and Pinellas Counties’ unemployment rate of 2.6% is drastically lower than the nation’s rate of 3.7%. 
  • Year over year, average asking rates remained the same, falling by little than 1 cent per square foot. 
  • The Tampa Bay area continued to win awards for its workforce, with Lightcast ranking Florida as the top state and Hillsborough as the eighth-best county for talent attraction in 2022. 

Office Market:

  • Vacancy increased to just over 20% primarily due to the increase in large sublease space that came back to the market totaling Approx. 900,000 SF
  • Leasing activity was robust, over 3 million SF leased but did not hit record-breaking numbers in 2021. Over 80% of the activity was accounted for in Hillsborough County and a substantial decrease in Pinellas County. Westshore experienced the most leasing activity.
  • Direct Face Rents were up over 1% compared to Q4 2021. 
  • Direct absorption trended favorably, finishing the year with more than 105,000 square feet. In addition, the main submarkets’ combined direct absorption of 535,000 square feet per year, comprising Westshore and CBD markets, highlights those submarkets’ demand under the current economic uncertainty.

                                                   

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.01 Sq. Ft.  $38.81 Sq. Ft.
Downtown Tampa $29.19 Sq. Ft. $31.95 Sq. Ft.
Northwest Tampa $26.17 Sq. Ft. $28.19 Sq. Ft.
South Tampa $23.82 Sq. Ft. N/A
I-75 Corridor $26.08 Sq. Ft. $27.22 Sq. Ft.
Downtown St. Petersburg $28.29 Sq. Ft. $34.61 Sq. Ft.

 

Building Highlights: 

  • Despite the current economic instability, such submarkets continue to be in great demand. As they search for space in mixed-use buildings, Tenants like Aviation Authority, White & Case, and Primo Water moved into 174,000 s.f. of new construction in Westshore and Tampa CBD this year. Companies believe these mixed-use developments may entice workers back to the workplace.
  • A focus on a flight to quality buildings providing Tenant focused amenities and strategically located where employees currently live, near their grocery store, gym, and where they spend free time.

2023 1st Quarter Forecast:

  • The regularity for businesses to invite workers back into the office will continue to rise. In order to sustain teamwork, camaraderie, and creative collisions, those that have flexible schedules may find it advantageous to base their scheduling on personnel who operate in the same teams or departments. 
  • If a business delays office space matters [renewing a lease vs. relocating] until the last minute, Tenants will find themselves at a disadvantage, with few alternatives, and minimal, if any leverage with negotiating based on the construction timelines and competing for availability in popular submarkets such as Westshore and Downtown Tampa. 
  • Tampa Bay will continue to see out-of-state businesses migrate and expand to Tampa Bay. 
  • Demand for under 5,000 SF office space could continue to remain high

What does this mean for Tenants?

  • Evaluate what is the best long solution for your company. What is best for the long-term well-being of the company. In a world where some work is moving more remote, how could mentoring, professional growth, and possibilities for younger employees look? Is it a hybrid, remote, or in-office job? 
  • Vacancy rates continue to be lower in comparison to those in other major US cities and are not feeling the same “pain” despite the fact that Landlords are more prepared to offer rent abatement and increased Tenant Improvement allowance due to high construction costs.

What does this mean for Landlords?

  • In order to provide at least basic building standards and Tenant specific finishing, Landlord’s must consider increasing Tenant Improvements allowances for construction expenses to compete for the right Tenants.

  • Profit margins will be impacted by inflation, but increased rents and 3-4% annual increases can aid in the impact of inflation.

  • Capturing Tenants will be easier when Landlord’s provide turn-key spec office spaces that are move-in ready for companies with pressing deadlines.