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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.
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3rd Quarter Office Market Update

It’s safe to say that the Tampa Bay office market hit a new record with the longest vacancy rate since 2008. The uphill climb of the market has continued as Tenants take a big gulp at climbing rate increases and Landlords are in control as vacancy decreases.

Tenants who have been locked into a lease for the past five years are experiencing sticker shock when reviewing available office option on the market. As rates increased in Class A offices in Westshore and Downtown Tampa, Tenants have moved into Class B options and outside of the core Westshore and Downtown Tampa area for financial refuge. The supply and demand curve has continued to be skewed towards the Landlord, therefore minimizing options for Tenants – especially under 3,000 square feet footprint.

A lot of chatter has been happening since the Midtown Office/Retail project was announced on the corner of North Dale Mabry and Gray Street, just north of Kennedy Boulevard. Sparkman’s Wharf in Channelside with updated retail and restaurants, mixed office and retail Water Street project in Downtown Tampa broke ground. Developers and Landlords are responding to the demand for more office space and those are just three of the largest projects that are on their way.

The Tampa market has experienced an approximately 3% increase in suburban areas and approximately 4% rate increase in City core Year To Date for Class A office space since Third Quarter 2017.

Below is the average asking rent for Class A full service office space:

  • Westshore: $33.20/sq. ft.
  • Downtown Tampa: $30.09/sq. ft.
  • I-75 Corridor: $25.89/sq. ft.
  • Downtown St. Petersburg: $29.06/sq. ft.

What does this mean for Tenants?

  • Ensure enough lead time to view options on the market. If you have 5-20 employees and typically waited three to four months prior to relocation for a new office space, six months would now be a better margin. For larger Tenants, allow for 12 months or more.
  • Your Broker can’t control what the market is baring as average rates. This could mean moving into a different quality of office space, relocating to a less dynamic submarket or minimizing your foot print to meet your budget requirements.
  • Have one or two backup options when pursuing your new office space. This is one of the most dynamic markets we have experienced, so strategize accordingly.

Now is the time to have a Tenant Broker advocating on your behalf. The market is dynamic, availabilities are 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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TREND ALERT: Does High Price Equal High Value?

Consumer Marketing 101: Customers relate the price of an item with the value. Just because a property has a high-ticket price does not mean the value is equally as high. When the market is hot is can be easy to justify paying more for an expensive commercial real estate option because we feel if the price is high, the value must be also. So what’s the catch? The assumed value does not always reflect the ticket price.

A common trap to look out for is for investors and sellers that will put lipstick on a pig. Try as they may, a little paint, carpet and updated finishes do not conceal or fully change the actual quality of the overall structure. Make sure that the added dollar signs actually represent features, upgrades or bonuses that are genuine and provide a basis for such a charge in the first place. Otherwise a Landlord can pull the wool over another Tenant’s eyes with a few flashy details.

 

Before you sign on the dotted line, ensure that all factors of the office space meet your needs and expectations. Here is what to assess:

  • Location: If the market does correct, will this still be a desirable area?
  • Goals: What are your long-term goals? A long-term lease or plan to move soon?
  • Value: Always have an appraiser evaluate the building

 

Lastly, calculate and calculate again. Is right now really the best time to buy? Would it make more sense to lease? No one can answer that except without calculating and including IT, all moving expenses, updating marketing materials and the lengthy list of necessary costs. You may still find relocating and purchasing an office building is the economical decision or renewing your lease where you are now. Having a real estate advisor on your side can provide market insight when evaluation both options.

 

 

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Can Tight Commercial Real Estate Markets Effect Your Business?

Can the tight commercial real estate market we are experiencing in Tampa negatively impact your business?

It can if you are not factoring in additional time to identify the right space to relocate your office. If you are reading this in 2018, you most likely signed your office lease in 2012 or 2013 when the market was still bandaging itself from the hit in 2008. In 2012, there were several options to choose from and Landlords were providing incentives like the chocolate samples are the Godiva store.

And now the tables have turned.

Free candy, let alone free rent has been taken off the table as more Landlord’s leaning back, crossing their arms as they review multiple proposals from Tenants for office suites choosing which company has longevity and profitability as a Tenant. Competition for high demand locations and size suites have turned into a profitable game for Landlords but not so much for Tenants who are competing for office space.

How do you make sure the tight market does not affect your business? Here are three suggestions.

  1. Lengthen the timeline for your search.

Allowing for more time in your search will provide leverage when negotiating, giving flexibility to walk away from a space when the terms are not ideal. If however, you are on a time crunch with your lease deadline lingering, you may be forced to agree to terms that increase your financial risk, liability and impact your business long term.

If you are in need of under 5,000 sq. ft., a 6-month search window or more is ideal. For over 5,000 sq. ft., 6 to 12 months is a preferable timeframe. With dynamic markets, contractors are busier and timelines or permits are extended.

  1. Keep your options open.

Avoid only focusing on one office space when the smarter, safer route to take is pursuing your top two options. Here are three main reasons why only focusing on one office space when identifying the right location to relocate your office can end up in a sticky mess:

  1. If the deal falls through, you are back to square one and have lost all the time put into one potential lease.
  2. You can’t compare another lease option and leverage it to show what a competing Landlord is willing to do.
  3. Having one option increases the chance you will give in to what the Landlord is asking because there is no plan B, and you are operating out of a fear of loss.

3. There is no “perfect space.”

Limited supply means limited possibility. Is it likely that an office space you tour has the exact floor plan you are desire? Most likely, no, it will not be a direct match for what you had envisioned. But preparing yourself with an open mindset to the office layout or space modifications will go a long way to getting you want you wan