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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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A Key Resource for Commercial Real Estate Buyers and Sellers

In the world of Commercial Real Estate, a Commercial Real Estate Office Broker, whose primary focus is representing office space, is a key resource for Buyers and Sellers alike. Commercial Real Estate brokers specialize in buying, selling, and leasing commercial properties, such as office buildings and industrial warehouses. Expertise and experience assist clients navigating the complex world of Commercial Real Estate,  and make informed decisions about their investments.

One of the key benefits of working with a Commercial Real Estate broker is their deep knowledge of the local market. Brokers have their finger on the pulse of the local commercial Real Estate market and can provide valuable insights into trends and opportunities. Office Brokers guide Tenants and Buyers uncover properties that meet their specific needs, budget and can provide Landlords and Sellers with accurate valuations and marketing strategies.

In a Commercial Real Estate office, Office Brokers work with clients to identify their objectives and develop strategies to achieve their goals. For Buyers, this might involve identifying properties that are likely to appreciate in value or Tenants, negotiating favorable lease terms. For Sellers, pricing the property appropriately, staging it for sale, and Landlords, developing a comprehensive marketing plan.

One of the key roles Commercial Real Estate Brokers play is that of a mediator. Commercial Real Estate transactions can be complex and often involve multiple parties, including Buyers, Sellers, lenders, and attorneys. Brokers act as a bridge between these parties, facilitating negotiations and ensuring that all parties are on the same page.

Commercial Real Estate Broker offices are not without their challenges. Managing multiple transactions simultaneously, while also staying up-to-date on changing market conditions and industry trends is a fast-paced environment that is not for the faint of heart. Brokers must also understand best practices for work environment culture, be skilled negotiators, able to navigate complex deals and resolve conflicts that may arise.

Despite these challenges, Commercial Real Estate Broker offices remain a critical resource for Tenants, Buyers, Landlords and Sellers in the Commercial Real Estate market. Whether you’re looking to buy, sell, or lease a property, working with a Commercial Real Estate Broker can provide you with the expertise and guidance you need to make informed decisions and achieve your goals.



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Basics you must know about a Modified Gross Lease

A Modified Gross Lease is a type of lease agreement that is commonly used in commercial real estate for office space. It is a hybrid between a Full Service lease and a Triple Net lease, which allows for some flexibility in terms of which party is responsible for certain expenses associated with the property. In a Modified Gross Lease, the Landlord and Tenant share some of the costs associated with the property, while others are the sole responsibility of one party or the other. 

The Tenant’s rents include paying the base rent and the budget expenses including taxes, maintenance, and other operating expenses. The Tenant is responsible for their own electricity and their janitorial cleaning services. Tenants may receive an invoice for their proportionate share (based on their square footage) based on the Landlord’s reconciliation of their annual budget which surpassed the Tenant’s Base Year or expense stop. The Tenant is responsible to pay any increase in those expenses above the Expense Stop amount. These overages should be nominal since these expenses are budgeted by the Landlord. 

The specific terms of a Modified Gross Lease can vary, but generally speaking, the Landlord will be responsible for paying certain expenses related to the property, such as property taxes, insurance, and maintenance. Meanwhile, the Tenant will be responsible for paying for certain utilities, such as electricity and water, as well as any expenses related to their specific use of the property, such as cleaning, HVAC repairs, plumbing within their Suite etc.

Advantages of Modified Gross Lease for Tenants

Flexibility in terms of which party is responsible for certain expenses can be a great advantage for Tenants who may not have the financial resources to pay for all of the expenses associated with a property on their own. By sharing some of these costs with the Landlord, Tenants can reduce their overall expenses and potentially afford a property that would otherwise be out of reach.

Minimize disputes between Landlords and Tenants by clearly defining which expenses are the responsibility of each party, there is less room for misunderstandings or disagreements. This can help to create a more positive and productive relationship between the Landlord and Tenant, which can be beneficial for both parties in the long run.

Disadvantages of Modified Gross Lease for Tenants

There are also some potential drawbacks to a modified gross lease. Monthly office expenses can fluctuate because the Tenant is paying utilities directly. An issue arises when you have fluctuating utilities so you must make sure they have a buffer in their budget when budgeting expenses because the cost can vary each month.

 

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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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The Rise of Florida Commercial Real Estate Market Trends

Florida's commercial real estate markets poised for continued growth - South Florida Business Journal

 

The Rise of Florida Commercial Real Estate Market Trends

The Commercial Real Estate market in Florida has experienced significant growth and change over the past few years. Due to the state’s favorable business climate, growing population, and low taxes have made it an attractive destination for companies looking to expand or relocate. We will discuss five of the current trends in Florida’s Commercial Real Estate market.

Growth of the Industrial Warehouse Sector

With The rise of e-commerce and online shopping and specifically service-based industries in Florida,  the demand for warehouse and distribution facilities has increased significantly. As a result, developers are building larger and more sophisticated industrial buildings to meet this demand. According to CBRE Florida ranks third in the nation for the total square footage of new industrial construction.

Flight To Quality and Flexible Office Arrangements 

The growth of remote work and the gig economy, many companies are seeking flexible workspace solutions that can accommodate their changing needs. Co-working spaces, which offer shared office space and amenities, have become increasingly popular in Florida’s urban areas. We are calling a “flight to quality” for companies who are choosing to lease office space in locations with buildings that provide amenities for Tenants and located where their ideal employers live, work and play. In Tampa, we are seeing this example in Westshore and Downtown Tampa. 

The Hospitality Sector Has Bounced Back and There Is No Looking Back

Florida’s tourism industry continues to thrive, with record numbers of visitors each year. According to Visit Florida, the state’s official tourism marketing corporation, Florida welcomed a record-breaking 135.5 million visitors in 2022. As a result, developers are building new hotels and resorts to meet the demand. Additionally, there is a growing trend of mixed-use developments that combine hotel, residential, and retail space. In Tampa Bay we have experienced an influx of new restaurants in Downtown Tampa’s Water Street community and Midtown, both mixed use developments which opened their doors to Tenants and patrons in the past two years. 

Retail Isn’t Dead, It Might Look a Little Different Though

Florida’s retail sector has been impacted by the growth of e-commerce, with many brick-and-mortar retailers struggling to compete. Fair to say we will be seeing changes in malls and the reuse of some of the big box Tenants being reimagined to smaller footprints and more experienced focused purposes. 

Florida’s favorable business climate and growing population have created opportunities for retail developers who can provide unique shopping experiences. According to Macro Trends Tampa Bays Population was 2,945,000 in 2022 and currently 2,977,000 in 2023. For example, outdoor shopping centers that offer dining, entertainment, and community events have become popular in Florida’s urban areas. Midtown which is centrally located between Westshore, South Tampa and Downtown Tampa is a prime example of new national retailers and restaurants who have expanded into Tampa Bay. 

Race for Multifamily Developers

Florida’s population is projected to continue to grow, with many young professionals and retirees moving to Florida. As a result, developers are building new apartment buildings and condominiums to meet the demand. Tenant’s are demanding convenience and desiring more than an apartment but built in a community with a small grocery and other day to day needs. No longer are the days where developers are delivering apartment complexes without a retail component for their Tenants.

Florida’s commercial real estate market is evolving to meet the increased demand by population growth plus the lack of existing housing. Florida’s  favorable business climate and low taxes are playing a key role in driving the economy forward. Developers are building larger and more sophisticated industrial buildings, co-working spaces and flexible office arrangements are becoming increasingly popular, and the hospitality, retail, and multifamily sectors are all experiencing growth. As the state’s economy continues to thrive, it is likely that these trends will continue, creating opportunities for real estate investors and developers in Florida.