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2nd Quarter 2020 Office Market Indicators and Report

2019 was a strong year and as we headed into 2020, the market was projected to be steadfast. The pandemic struck mid-first quarter. In second quarter, we came out on the other side of a full quarter in the mist of the pandemic. The market did experience an impact with new leasing demand dropping approx. 50% from the first quarter.

Sublease supply is still down from 2019 due to large companies securing the supply and sublease terms expiring.

New construction has been hyper focused in Hillsborough County, with approx. 1.4 million square feet and approx. 895,000 square feet in the Central Business District.

Here is a recent article we wrote about how the corona virus could change the future of office space. There has been an increase in retail vacancy due to the restrictions especially for small business owners of restaurants and bars. The warehouse sector has experienced explosive growth with increased decreased of service type businesses. Reference our Quarter 4 2019 market report here for comparison.

Important Highlights:

  • Unemployment rate in Tampa Bay increased to to 13.1%, compared to end of Quarter 2019 was approx. 2.7%
  • Tampa Bay’s jobs were impacted with nonagricultural employment decreasing by approx. 7.4%. Job growth based on year-over-year, was experienced in Construction with 300 jobs and Government sector with 100 jobs
  • Class A vacancy increased to approx. 12% by the end of 2nd quarter and Class B vacancy to over approx. 15%.

 

Let’s Talk Rent Numbers

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Westshore $33.85/sq. ft. $38.00/sq. ft.
Downtown Tampa $34.62/sq. ft. $36.39/sq. ft.
Northwest Tampa $22.00/sq. ft. $24.40/sq. ft.
South Tampa $29.60/sq. ft. N/A
i-75 Corridor $22.53/sq. ft. $25.78/sq. ft.
Southwest $19.75/sq. ft. $24.00/sq. ft.
Downtown St. Petersburg $28.20/sq. ft. $31.00/sq. ft.

Construction Highlights:

Despite recent events, Heights Union and SkyCentre One are both projects underway in Downtown Tampa projected for 2020 occupancy and approx. 60% preleased. Midtown has new leases signed by national retailers. Sparkmarn Wharf is renovating the office portion creating 200,000 sf of office space and recently landed Industrious, coworking office space as a Tenant.

2020 3rd Quarter Forecast:

  • Companies may provide more flexible options for employees with hybrid of work from home and the office scenarios.
  • Build outs that were in process to be adjusted to more social distance measures
  • Companies with leasing up for renewal may shift their office footprint to provide an environment where employees feel comfortable and safe in the office
  • The fluidity of Covid will continue to determine the long-term impacts on the office sector as the year continues and the upcoming election

What does this mean for Tenants?

  • Potential opportunity when signing new leases for rental concession such as shorter lease terms, free rent abatement and Tenant Improvement allowance
  • Evaluate if Covid has and will make a lasting impact on your business with work flow layout in the office and number of people who are in the office on a regular basis. Thinking your office footprint may need to adjust in size? Use our calculator here to determine your ideal office space size
  • If you lease renewal is coming up in the next 24 months and unsure about your business’ office space needs? Read this article for 3 keys when determining your next steps. 
  • Now is the time to have a Tenant Representative Broker advocating on your behalf. Having an advisor on your side who has their finger on the market pulse and long-standing relationships with Landlord Agents will deliver the best terms possible.

What does this mean for Landlords?

  • Potential for downward pressure on rents Tenants may be willing to pay
  • Providing more flexibility in lease term and concessions to accomplish deals
  • Ensure Tenant’s have strong financials with low debt to income ratios when signing new leases
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How Could the Corona Virus Change the Future of Office Space?

Short answer, it’s too early to tell the impact the Corona Virus will have on office space market in Tampa Bay. However, there are a couple of factors based on the shift we have seen with the Corona Virus that could impact office layout, cleanliness and the space requirements. Reviewing the top three factors which were impacted from the Corona Virus were air quality, limiting the touching of common surfaces and shared common areas. Below I have addressed the three different areas and how each could be impacted.

Cleanliness and Air Quality.

Good air quality has already been correlated with productive work environments and minimizes the number of sick days. Air quality improves the over all sense of well-being, focus and productivity. Buildings who have high standards for air quality and circulation will be favored over others. If a technology is created to minimize this impact of virus spread, this could also be a consideration when companies are reviewing which office buildings can provide the safest environment.

Landlords could increase cleaning standards by their janitorial companies in common areas such as fitness centers, bathrooms and elevators. The recent addition of Tenant lounges in office buildings with shared kitchens, meeting spaces and activities will have be evaluated with new cleanliness standards or reconfigured. Tenants who hire their own janitorial services, might have to comply per their lease, cleaning standards within their office suites.

Office Layout.

We have seen the trend of more open work environment shift over the years, some with smaller work areas and bringing people closer together. For example, think of two long tables with employees on each side, creating a community work area that several companies have adopted. Work stations moved into shorter “walls” to create a collaborative and open environment.

The immediate use of small and large conference rooms could be avoided. The changes of the 6 feet in between individuals which has been mandated could translate into the layout and space needed to fit the same 20 people may increase thus, requiring more space allotted per person. Individual offices could return as a solution or larger work stations with taller walls and dividers could make an appearance. Click here to read the average work stations and office sizes and what is your company’s ideal size.

Working From Home.

I have heard some say companies transitioning to working from home could reach a point where production is consistent and the habit of working from home has created a new culture which the staff prefers. I do not believe this 100% work transition will occur, it depends on the industry, company and the culture of the company.

I believe the 100% transition to remote work may be less common, a hybrid of minimizing the number of people in the office and frequency may be more common. The opposite could also be true, realizing the need for in person communication and collaboration is required for productivity.

 

Making  the protection of health and safety of employees a top priority, will reduce risk and position companies to be a top employer of choice in a competitive environment. Having a Tenant Representative on your side will provide an advantage only an expert with their ear to the ground on a daily basis can deliver insight and market specialization. Give our team at Office Space Brokers a call 813-289-3700, for a consultation to strategize your company’s office space steps.

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My Office Space Lease Is Coming Up and The Economy Just Plummeted

Is your lease coming up in the next 6-9 months? If so, your decision to renew or relocate will have a few additional factors to consider when making the decision.

It is typical for a lease renewal deadline to be given in writing to a Landlord at least 6 months prior to the lease ending. You might find yourself in this situation, your lease is up in the next 6 months and not sure if you plan on relocating or renewing?

Check your lease for a Renewal Deadline.

We wrote a blog giving you a map, to avoid hidden traps when renewing your office space lease. Use a fine-tooth comb to check when your notice, if you chose to renew your lease, is due to the Landlord. Double check there is no requirement to notify the Landlord you will not be renewing. If you need more time, go ahead and ask the Landlord for an extension on the notice to provide to the Landlord whether you wish to renew. Office Space Brokers clients, we give clients a thirty-six, twenty-four, twelve and six month reminders to assist in this planning process.

Make a Scenario A and Scenario B plan.

Create two scenarios for your office space requirements. Scenario A is best case scenario for your business and Scenario B is worst case on how you foresee your office space needs will be impacted. Office Space Brokers provides a free resource on our website where you can calculate your office space requirements based on your ideal layout. Click here to access the calculator. 

Create Your Budget.

What is your Scenario A and Scenario B office budget? If your budget drastically decreases but the office space size requirements stays the same, considering a different submarket or changing the class of building you lease, can provide the opportunity to meet your budget. When you change from a Class A building to a Class B building that is something that could change the type of lease structure. Click here to read more about the three most common lease structures.

Commercial Real Estate typically responds to market shifts and not necessary and economic leader. As I am writing this article, it is too early to see the lasting impact except for the noticed impact in the small retail and restaurant businesses.

Having a Tenant Representative on your side will give you the pulse of the market and insight only having your ear to the ground on a daily basis can provide. Give our team at Office Space Brokers a call 813-289-3700 or cd@officespacebrokers.com to evaluate your company’s office space solution.

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Fourth Quarter 2019 Office Space Market Indicators and Report

Important Highlights:

o Unemployment rate in Tampa Bay dropped to 2.7%, lower than the US average of 3.9%.

o Tampa Bay’s economy accelerated over the past year, adding over 30,000 jobs for an annual growth rate of over 2.0%.
o Class A rent increased over 6% a Square Foot, pushing the average rent across the Tampa Bay Market over $30.00 Square Foot for the third consecutive quarter in 2019.

 
Let’s Talk Rent Numbers:

Submarket

Overall Average Asking Rent All Classes

Overall Asking Rent Class A

Westshore

$33.85/sq. ft.

$36.87/sq. ft.

Downtown Tampa

$34.62/sq. ft.

$36.39/sq. ft.

Northwest Tampa

$23.96/sq. ft.

$26.40/sq. ft.

South Tampa

$29.60/sq. ft.

N/A

i-75 Corridor

$22.53/sq. ft.

$25.78/sq. ft.

Southwest

$19.75/sq. ft.

$24.00/sq. ft.

Downtown St. Petersburg

$27.91/sq. ft.

$30.18/sq. ft.

Construction Highlights:

Approx. 2 million square feet under construction and increase in speculative construction. Tampa Bay is on tract for it “largest injection of space in over ten years.” Heights Union and SkyCentreOne are both projects underway in Downtown Tampa. Heights Union recently landed co-working giant, WeWork, as a 50,000 SF lease.  Sparkmarn Wharf is renovating the office portion creating 200,000 SF of office space. Highwoods plans to renovate the 100,000 SF in Westshore formerly leased by Laser Spine Institute.

2019 4th Quarter Forecast:

Companies outside of Tampa Bay and around Florida and the country will continue to target Tampa Bay as they identify cities to expand due to Tampa Bay’s opportunity for small to large growing companies. Tenants may continue to leave Class A+ buildings or maximize existing office space for efficiently, as they experience sticker shock and move into B buildings and other Sub-urban markets.

What does this mean for Tenants?

o Flexible office space solutions have increases with We-Work location in Downtown Tampa and Pipeline for Tenants who prefer short term and flexible options.
o Parking in downtown Tampa still remains an issue with limited spots and cost is high.
o Construction costs remain high and Tenants may have to sign a 7-year term to cover requested Tenant Improvements.
o The end of 2020 should provide a wide variety of office space options with approx. 1,000,000 Square Feet in the pipeline for new construction.
o Now is the time to have a Tenant Representative Broker advocating on your behalf. The market is dynamic, availability is quickly shifting and having a Broker who has their finger on the market pulse and long-standing relationships with Brokers will get you the best terms possible.

 What does this mean for Landlords?

o Landlords are moving forward with new Class A construction to meet the forecasted transition into smaller, sub-markets i.e. Water Street and the Heights Union with upcoming residential construction, creating a dense, live work and play environment

o Class A rent is in the $30-$45 Square Feet Full Service depending on location and new construction
o Westshore, Downtown Tampa and Downtown St. Petersburg are still highly desired areas for Tenants especially with generational shift of decision making
o Landlords of Class B and C buildings continue updates to remain competitive with new office buildings breaking ground
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Second and Third Quarter Office Space Market Indicators and Construction Updates

  • Unemployment rate in Tampa/Hillsborough County fell by 20 basis points (bps) over the past twelve months to 3.4%
  • Tampa Bay’s economy accelerated over the past year, adding 22,140 jobs for an annual growth rate of 2.0%.
  • Overall office vacancy rate in Tampa/Hillsborough County closed out the first half of 2019 at 12.8%, a 200 bps increase when compared to this time last year.
  • Tampa Bay leads the nation with one of the lowest cost of living

Second Quarter

Important Highlights

  • Class A rent increased approx. 2% a square foot, pushing the average rent across the market over $30.00 a square foot.

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Westshore $33.11/sq. ft. $32.98/sq. ft.
Downtown Tampa $29.15/sq. ft. $32.67/sq. ft.
Northwest Tampa $22.25/sq. ft. $24.72/sq. ft.
South Tampa $29.60/sq. ft. N/A
i-75 Corridor $22.53/sq. ft. $25.18/sq. ft.
Southwest $19.28/sq. ft. $24.00/sq. ft.
Downtown St. Petersburg $27.23/sq. ft. $30.25/sq. ft.

Third Quarter:

Important Highlights:

  • 3rd quarter market rent increased by 3.4% per square foot full service rent
  • Central Business District and Westshore submarkets rose 3.1% to $32.77 and 10.7% to $35.99 per square foot
  • The CBD submarket has the most occupancy gains, which ended the third quarter at 10.1%
  • Westshore rent rose to its highest level ever rent price for submarket
  • 1.6 million square feet was leased within suburban markets holding the majority of the transactions
  • Westshore and some of the Suburban markets experienced large space back on the market with large Tenants such a Laser Spine and Coca-Cola moving out.

 Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Downtown Tampa $29.93/sq. ft. $32.77/sq. ft.
Westshore $31.03/sq. ft. $35.99/sq. ft.
South Tampa $31.00/sq. ft. N/A
i-75 Corridor $23.50/sq. ft. $24.56/sq. ft.
Southwest $19.20 N/A
Northwest Tampa $22.95/sq. ft. $25.14/sq. ft.
Downtown St. Petersburg $27.47/sq.ft. $30.30/sq. ft

Construction Highlights: More Cranes in the Skyline

The second quarter marked the most significant office construction in over a decade with approximately 1.4 million square feet under construction, marking the most office construction the market experienced since the second quarter of 2008.

  • The Central Business District (CBD) led with 825,000 sf under construction, the highest level since the early 1990’s.
  • Heights Union construction is underway with pre-leasing activity with a 75,000-sf lease to Axogen in the first building and a 50,000-sf lease by WeWork in the second building. Both buildings will be completed by mid-2020.
  • The 150,000 sf office portion of the mixed-used development Sparkman Wharf is slated for completion in mid-2020.
  • 1001 Water Street was underway, a 380,000-sf free-standing office building located in multi-billion dollar mixed-used project. It was the second office building under construction in the project, slated for mid-2021 completion.
  • Midtown One, an office building in a larger mixed-use project broke ground in the second quarter.
  • Phase One, slated to be completed before the 2021 Super Bowl in Tampa, will comprise retail, including a Whole Foods, a hotel, multi-family apartments, parking garages, and a 152,000-sf speculative office building.
  • Renaissance VII, a 115,000-sf build-to-suit for Wellcare in the Northwest submarket was completed

2019 4th Quarter Forecast:

The shortage of available space combined with business growth is expected to continue to drive vacancy down in the Class A and B space. Companies outside of Tampa Bay and around Florida and the country will continue to target Tampa Bay for as they identify cities to expand into because of Tampa Bay’s opportunity for small to large growing companies. Tenants may continue to leave Class A+ buildings as they experience sticker shock and into B buildings and other Sub-urban markets.

What does this mean for Tenants?

  • Construction costs on 10,000 square feet and less often see an overage in cost.
  • Parking in downtown Tampa still remains an issue with limited spots and cost is high.
  • Landlord usually offers an average of one half month of free rent each year of the lease term.
  • Usually, a five year lease receives an allowance for Tentant approved allowances, but does not cover the cost of the full build out. Most tenants pay to fund the rest of the cost, though owners will increase their contribution based on length of term and credit of tenant.
  • Limited options of under 5,000 square feet of sublease office space. If you think a short term lease is required as you building, options such as Industrious provide great flexible alternatives as you grow
  • Now is the time to have a Tenant Representative Broker advocating on your behalf. The market is dynamic, availability is quickly shifting and having a Broker who has their finger on the market pulse and long standing relationships with Brokers will get you the best terms possible.

What does this mean for Landlords?

  • Remaining in the driver seat as demand remains strong
  • Influx of companies outside of Tampa Bay will continue interest leasing space. Ensure proper financials and company information is scrutinized before signing a lease.
  • Due to economic growth, be cognizant of new residential, mortgage or lending companies with limited track record as they are usually impacted by market influx, ensuring low debt to income ratios when reviewing financials
  • Updating interior and exterior finishes for Class B and C buildings is wise to attract and remain competitive for Tenants who are considering leaving Class A+ space due to rent hikes