Important Highlights:

Tampa Bay:

• Hillsborough and Pinellas Counties’ unemployment rate of 2.7% is drastically lower than the nation’s rate of 3.5%. 
• The population of the city has grown by 1.1% year-over-year.
• Tampa has been named one of the best places in the United States to live, according to a new ranking released by the finance brand Money.

Office Market:

• Supply: The total vacancy rate in Tampa increased to 19.4% in the third quarter of 2022 due to 1 of Hillsborough Counties largest Tenants deciding to sublease their 556,000 SF office space. The sublease vacancy increased to 4.9%, a 40% increase from the second quarter of the year and the highest since 2002. 
• Demand: Increase in vacant space however, the demand has continued to rise with Approx. 10% up in leasing activity year-to-date. 
• Current Tenant Trend: There is a trend of “flight to quality” with companies being attracted to Class A and trophy buildings that are highly amenitized with cafes, Tenant lounges and collaboration areas, gyms, and focus on enhanced air quality.                                                                       

Let’s Talk Rent Numbers:

 Building Highlights: 

• The most significant recent transaction may have been the sale of the recently delivered, two-building Heights Union property to Atlanta-based Cousins Properties. The two properties that TPA Group sold, totaling 294,000 SF, sold for $144.8 million, or a cap rate of 3.2%. The buildings were 93% occupied when they were ultimately constructed in late 2020, with businesses in the life sciences sector like Pfizer and Axogen occupying over 70% of the leased space.

2022 4th Quarter Forecast:

• Companies will continue bringing employees back into the office with increased frequency. Those who are maintaining a flex schedule may find it beneficial to schedule to be based on employees who work in teams or departments to maintain synergy, comradery, and creative collisions. 
• If a company has delayed their office related to the last minute, they will find themself at a disadvantage with limited options and in a position of inferiority when negotiating 
• Office vacancy rates will slightly uptick but Tampa Bay will continue to experience companies in the tech industry and cyber security relocate to Tampa Bay and/or require a larger office footprint

What does this mean for Tenants?

• Decide what is best for the long-term health of your team and company. What do mentorship, professional development, and opportunities for younger employees look like if work was 100% remote? Is it a remote, in the office, or a hybrid? Testing a hybrid [mix between working from home and in the office] can be a compromise. 
• Although Landlords are more willing to provide rent abatement and Tenant Improvement allowance, the vacancy rates are not similar to those in other big US areas, and not experiencing the same “pain”. 
• High construction costs mean a more expensive build-out. Landlords will require longer,  7-10 + year leases to recoup those costs. 
• Annual increases have typically been 3% on annual basis but some Landlords are beginning to increase to 4% and above.

What does this mean for Landlords?

• Construction costs remain high and will have to increase Tenant Improvement allowances to deliver basic building standard finishes and significantly for upgraded finishes to win deals.
• Having turn-key spec office suites that are ready for Tenants who have quick deadlines due to holding off their office move, will have an advantage in winning new Tenants.
• Inflation will continue to be a factor and will impact profit margins.