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

Important Highlights:

Tampa Bay:

• The metro area’s unemployment rate has reached an impressive low of 3.2% compared to the 3.8% national average.
• “The Tampa area’s labor force grew by 75,903 over the year in September 2023, a 4.6 percent increase.” 
• “Tampa was ranked as the 17th best city to buy a home among all cities, and the fifth best place to buy a home among big cities with more than 300,000 people, according to WalletHub.” 

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:

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.