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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

 

 

 

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Take A Closer Look at the Tampa Bay Office Space Market

“Florida continues to see strong, broad-based gains with employment up solidly. The Tampa Bay area remains one of the nation’s fastest growing major metropolitan areas.” Alexis Muellner, Tampa Bay Business Journal

First quarter of 2019 is now completed, what does that mean for the rest of the year? How you start the year sets the pace and can determine the rest of the year. What is the pulse of the Tampa Bay office is market and what do we see for the near future?

 

We hit a new record high in Quarter 1.

  • 159 people are moving to Tampa Bay every day
  • Continued economic growth by adding 26,200 jobs creating an annual growth rate of 1.9%.
  • Class A rents increased to by approx. 2.2%. The most substantial impact was due to 6.4% increase of Westshore and Downtown Tampa
  • Record highs for Class A office space in Westshore
  • Hillsborough County vacancy slightly increased compared to Q1 2018
  • Declining vacancies and dynamic Tenant demand is driving the higher rents and confidence from Landlords in Tampa Bay

 

Cranes in the Sky Signaling Strong Market Growth. There Tampa office market hit a new record the first quarter in 2019 office construction in over 10 years with 730,000 just behind 2008 when over 890,000 sf was under construction.

  • Significant projects in Tampa that broke grand.
  • Heights Union in Tampa Heights on two 150,000 sf buildings. The first building is estimated to be completed in early 2020.
  • Water Street project has been moving along with their 180,000 sf office portion at Sparkman Wharf.
  • MidTown Tampa, just North of Westshore with mixed office building, retail, apartments and hotel. The initial phase is estimated to be completed before the Super Bowl in 2021.

 

Let’s Talk Rent Numbers.

Average asking rent for Class A full service office space in Tampa Bay:

  • Westshore: $33.59/sq. ft.
  • Downtown Tampa: $32.50/sq. ft.
  • Northwest Tampa: $24.35/sq. ft.
  • Downtown St. Petersburg: $30.25/sq. ft.

 

2019 Forecast:

The market is estimated to continued rent growth in 2019.  Landlords remaining in the driver’s seat as supply continues to remain limited and Tenant demand is increasing.

What does this mean for Tenants?

  • Increase your estimated lead time when evaluating your office relocation
  • Continued vacancies decreasing while the Tenant demand remains steady, Landlords have the upper hand to increase rents through 2019.
  • Now is the time to have a Tenant Broker advocating on your behalf. The market is dynamic, availability of space 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 as possible

 

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Was 4th Quarter of 2018 the End of the Office Space Era?

Not the slightest. How is the Tampa Bay office market doing? Compared to Q4 of 2017, the overall vacancy rate for Hillsborough County office space has increased slightly to 11.9%. It should also be noted that overall new square footage under construction increased dramatically from 150,000 to 580,000, bringing over new 400,000 sq. ft. to the market. The average asking rent also increased from $24.88/sq.ft. to $26.07/sq. ft., with Westshore leading the way with the highest level of Class A asking rent noted in the history of Hillsborough County at $34.00/sq. ft.

Downtown Tampa and Westshore often teeter totter back and forth of for the top spot of highest rent in all submarkets with approx. 10% separating from the next submarket in the lineup.

Below is the average asking rent for Class A Full Service office space:

  • Westshore: $34.00/sq. ft.
  • Downtown Tampa: $32.50/sq. ft.
  • Northwest Tampa: $24.20/sq. ft.
  • Downtown St. Petersburg: $30.25/sq. ft.

As the year drew to an end, it should be noted that Class A space led the market with over 100,000 sq. ft. absorbed. Office space in the suburban market held the greatest ranking with almost 2.0 of the 2.4 million sq. ft. available leased. These statistics help us to see how the leasing aspect of the Tampa Bay market was robust and points to a healthy 2019 rate of leasing activity as well.

Forecast:

The market is estimated to continue the rent growth in the 2019 and starting 2020 level out and potentially increase as more available space comes is delivered to the market.

What does this mean for Tenants?

  • The market should continue to absorb positively in this next quarter.
  • With vacancies decreasing while the Tenant demand remains steady, Landlords have the upper hand to increase rents as we move into 2019.
  • Now is the time to have a Tenant Broker advocating on your behalf.The market is dynamic, availability of space 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 as possible.