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How Office Space Can be Used to Hire and Retain Employees

Tenant lounge and shared areas started trending in Tampa around 2017. In commercial real estate we say, “if you build, they will come.” Landlords who wanted to fill and maintain buildings started using this to leverage office buildings to be used as a competitive advantage to gain and retain Tenants. When Covid first hit, these building amenities were shut down for a period of time and thankfully up and running again.

Companies that are facing hiring challenges and desire to bring their folks back to the office are looking for ways to stand out amongst their competitors and create an environment their team wants to experience. Gone are the days of giving lunch on Fridays and maybe a ping-pong table will cut it for “workplace culture”. Maintaining a holistic community focus is an imperative factor to accomplish both goals.

 

Where is the office building located?

The first factor in a holistic community is where the office building is located. When selecting sites ask yourself the following:

  • “Is my team already driving here?” I.e., is a grocery store nearby, popular gyms, and other stores? When companies are requiring their employees to come to the office, being located where employees plan on running errands is convenient for cities like Tampa where most folks are individually commuting.

 

  • “Is the building easy to access?” i.e., is located on major highways like i-275, Veterans Expressway, and i-4. Folks have been used to not commuting to work and being able to minimize the commute time is a lifestyle preference.

 

  • “Does my team feel safe and comfortable in the surrounding environment?” We all know when the time changes in Tampa and the sun is setting at 5:30 pm, there still can folks working past 5:00 pm whom you want to ensure are comfortable walking to their car if they are in the office later.

 

Does the inside and outside of the building support a healthy and happy lifestyle?

Tenants want to look for buildings with amenities like an onsite gym, workout classes, and outside community spaces. Tampa Bay is surrounded by water, we have outside-friendly weather the majority of the year and have the best sunsets in the entire country. Looking for buildings that incorporate an outdoor design and other wellness-oriented amenities into projects creates a flexible feel for employees to recharge and alternative workspaces to boost focus and productivity. Some great examples to look for is wifi outside, walking path, and even yoga classes offered before work or during the lunch hour.

In a day and age where finding and maintaining the right people is tough, having a holistic approach with your office space will give companies the edge needed to win the right people who align with their company.

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3rd Quarter 2021 Office Market Indicators and Report

Important Highlights:

Tampa Bay:

  • Within the last 5 quarters, office space leasing has been increasing rapidly.
  • Tampa Bay Wave ranked #1 in Florida for the organization with the greatest number of startups receiving investments!
  • The unemployment rate in Tampa Bay increased to 5.0% in October 2021, compared to the end of 2nd Quarter 2021, which was approx. 4.6%. 
  • Average direct asking rentals are down 2.5 percent year over year, owing mostly to re-pricing in certain availabilities that have been on the market for more than a year. In contrast, several Class A buildings in Westshore raised their asking prices to $42.00 per square foot, bringing them closer to pre-pandemic values.
  • For the sixth year in a row, Florida has been rated first in net migration. According to the United States Census Bureau, Florida gained the most inhabitants between July 2019 and July 2020, with 252,717 additional residents.

Office Market:

  • Office vacancy rates increased in Hillsborough County and Pinellas County to around 12% but have remained fairly constant. 
  • Both Class A and Class B building’s rents grew more than 2%, placing Tampa in the top 15 markets in the US with average office rentals of more than $25 per square foot. 
  • Absorption trended negative for the quarter and remains negative year-to-date, but several submarkets recorded positive quarterly absorption.
  • Westshore submarket which leads in year-to-date absorption with over 140,000 s.f. Nearly all the quarter’s negative absorption took place in the Northwest Tampa submarket.

 

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.42 Sq. Ft.  $38.57 Sq. Ft. 
Downtown Tampa $41.26 Sq. Ft.  $45.48 Sq. Ft. 
Northwest Tampa $24.96 Sq. Ft.  $27.11 Sq. Ft. 
South Tampa $24.16 Sq. Ft.  N/A
I-75 Corridor $ 25.19 Sq. Ft.  $28.23nSq. Ft. 
Downtown St. Petersburg $30.55 Sq. Ft.  $30.88 Sq. Ft. 

Construction Highlights: 

  • The 380,000 s.f. was completed this quarter at 1001 Water Street in Tampa. Additionally, 500,000 s.f. was delivered earlier this year at SkyCenter One, Midtown West, and The Lofts at Midtown, all in the Westshore submarket.

2021 4th Quarter Forecast:

  • Confidence in the Tampa Bay market is high, going into the last quarter of 2021 and into 2022 amid sustained new-to-market tenancy.
  • Total vacancy is expected to remain the same through the rest of 2021
  • Tenants will slowly proceed to bring their teams back to the office 
  • By mid-2022 remaining new construction space with many buildings is expected to be over 50% leased.

What does this mean for Tenants?

  •  Managing market expectations of primary markets that are experiencing higher office vacancies than Tampa Bay. Landlords in Tampa Bay are not motivated in the same way that they are in other parts of the country to replace vacancies due to the lower vacancy rates than primary markets such as New York and Los Angeles. 
  • Take advantage of market circumstances we do have by making use of available sublease space, which can offer more reasonable rates, shorter terms, and any available furniture.

What does this mean for Landlords?

  • Evaluate concessions for Tenants by adjusting asking rents, higher Tenant Improvement allowances to gain a competitive edge over Landlords who maintain their face prices
  • Provide more flexible lease terms 
  • Expect an increase of new to market Tenants are expanding or relocating to Tampa from other states
  • Start marketing available space 6 with a longer advanced lead time for office space that is coming available
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All You need to Know About Operating Expenses In Office Space Lease

 

What Are Operating Expenses In Office Space Lease?

Operating Expenses are the expenses to operate the building. The Landlord has an annual budget and typically reconciles by June of the following year. A good Landlord stays within or close to their budget each year. Depending on the type of lease structure (Full Service, Modified Gross, or Triple Net) determines if a Tenant is just responsible for the pass thru only or the entire Operating Expense. Read more about the three most common lease structures here.

Why does this matter?

When you sign a new lease your base year is established. You always want the highest base year. Why? Each Tenant is responsible for any pass thru overage from the Landlord based on the prorated percentage of their sf of their suite being leased in the building. Having the highest base year minimizes the amount of this potential pass thru.

How can we evaluate the consistency of the Landlord operating within or close to the Operating Expense budget?

  • During Lease Proposal negotiations, requesting the two previous year’s Operating Expenses budgets and reconciliation will be a good indicator of the Landlord’s budgeting consistency.
  • Once the Landlord’s consistency is verified, a strategy to minimize any potential pass thru is to cap the controllable operating expenses i.e. management fee, cleaning, improvements on the building, etc. We discussed the importance of reviewing the Operating Expense reconciliation here. We once saved a Tenant tens of thousands of dollars who had been overcharged for a few years by a Landlord “passing thru” expenses that were not application to the Tenant’s lease. Reconciliation is one of the more overlooked areas of fiscal stewardship when leasing office space.

The above is just scratching the surface of what is entailed in Operating Expenses.
Having a Tenant Representative on your side will give you an advantage when evaluating operating expenses in different buildings. Give our team at Office Space Brokers a call 813-289-3700, for a complimentary consultation to strategize your company’s office space.

Types of Leases

There are typically three primary types of real estate leases, each with its own set of benefits and drawbacks. You must read the lease specifics thoroughly so that you know what to expect in any circumstance. Full Service, Modified Gross, and Triple Net leases are the three most frequent forms of leasing.

Full Service: 

A lease form in which the landlord is liable for all of the property’s operational expenditures.

Modified Gross: 

In which the tenant pays a flat rate for the space.

Triple Net:

Where The Tenant pays all the expenses of the property to the landlord.

 

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Is The Tampa Bay Office Market Overflooded with Sublease Office Space?

 

Is The Tampa Bay Office Market Overflooded with Sublease Office Space?

When we were evaluating the future of office space in 2020 there were several discussions of what the future of office space in Tampa would hold. I even wrote a blog explaining what I believed the two contributing factors would be: 2020 Presidential election and a second lockdown. 

Tampa Bay did not experience the second lockdown but we know other cities around the United States did and impacted their use of office space. 

Evaluating the national commercial real estate market is great when analyzing trends and an overall sense of where we are headed. We have to keep in mind, real estate markets are also very independent of the area: the people, culture, politics, and the diversification of companies somewhere like Tampa, can be different than Los Angeles. All the major headlines highlighting the surplus of office space on the market in New York, Los Angeles, and Chicago and most think Tampa Bay is experiencing the same trends. Has Tampa experienced an influx of sublease space on the market? Yes. Has it been to the level of other major cities? No. 

Why is Tampa not experiencing the same impact as other cities?

  1. The average size of an office space Tenant in Tampa is under 10,000 RSF in a 100,000 sf + building, the majority of buildings are diversified with a smaller Tenant mix. We are experiencing larger vacancies but the under 3,000 SF sublease vacancies are moving quickly in the market. The large sections of office space of sublease coming to the market are mostly Publicly Traded companies whose decision-makers are out of New York, Los Angeles, and Chicago deciding to maintain consistently from policies made at their HQ level to across the country. 
  2.  The average size company in Tampa has fewer people and privately-held businesses are the lifeblood of our business community. Smaller businesses typically have more flexibility in implementing new policies and procedures.
  3. Tampa is a pro-business environment. Tampa did not experience a second lockdown. I believe if we had a second lockdown there would have been a dramatic impact in our business community, just like NYC did. Tampa is benefiting from companies relocating to Tampa and the expansion of companies already located here. Sublease office space that might have been on the market is being subleased by companies moving to Tampa who want a smaller footprint as they grow and leveraging favorable terms. There are pros and cons to subleasing office space. A great pro can be more favorable terms of a below-market rent and shorter lease term but there can also be cons.
  4. The people component is the most important in terms of office space. Tampa has been known for diversity in backgrounds and melting pot natives with folks from all over the country. Culture in Tampa’s location is one factor but the culture of each company is different. The people who make up the culture in each company play a more important role.

As 2021 comes to an end and sights are set on 2022, the influx of sublease space has cooled down and folks will have at least 1-2 quarters under their belt of implementing back to work policies. Although office sublease inventory decreased in the third quarter, most U.S. markets are still dealing with record rates of sublease space. Additionally, unlike other major metro areas, there are no whispers of a second lockdown in our future. The data is showing to be optimistic for the Tampa office space market as we head into 2022. 

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2nd Quarter 2021 Office Market Indicators and Report

Important Highlights:

Tampa Bay:

  • Office vacancy rates increased in Hillsborough County and Pinellas County, both counties experienced overall growth rents of +/- 6% Year Over Year. Both Class A and Class B building’s rents grew.
  • The unemployment rate in Tampa Bay increased to 4.6% in May 2021, compared to the end of 1st Quarter 2021, which was approx. 4.2%. Non-agricultural employment sector increased and Financial Activities, Professional & Business Services, and Construction were amongst the top sectors which gained jobs.
  • Florida ranked in the number one spot for net migration for the fifth consecutive year. According to data from the U.S. Census; Florida saw the largest gain of residents between July 2019 and July 2020 with 252,717 new residents. 
  • Tampa ranked ninth in tech talent growth over a five-year span, increasing 23.5% from 2016 – 2020 in U.S. markets. Meaning Tampa acted as a job creator, supplying employment to tech workers that we’re unable to find employment in their metro of origin.

Office Market:

  • Even with a significant amount of sublease space on the market, absorption trended positive for Q2.
  • Office supply increased to historic levels due to the approximate 500,000 square feet of new construction delivered by SkyCenter One, Midtown West, and The Lofts at Midtown.

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.11 Sq. Ft.  $37.95 Sq. Ft.
Downtown Tampa $36.24 Sq. Ft. $37.98 Sq. Ft.
Northwest Tampa $24.02 Sq. Ft. $26.97 Sq. Ft.
South Tampa $27.48 Sq. Ft. N/A
I-75 Corridor $25.26 Sq. Ft. $28.01 Sq. Ft.
Downtown St. Petersburg $30.87 Sq. Ft. $31.73 Sq. Ft.

Construction Highlights: 

  • SkyCenter One the 497,787 s.f. The building was completed this quarter at, Midtown West and The Lofts at MidtownMidtown West
  • In Hillsborough County, there is new construction at 1001 Water Street in the CBD, Midtown Two in Westshore, and an office building in the University of South Florida Research Park in the Northwest submarket. These are expected to deliver by the end of the year. 

2021 3rd Quarter Forecast:

  • Total vacancy is expected to rise as current construction projects are slated to deliver by year’s end.
  • Tenants proceed to bring their teams back to the office as flex schedules are being tested with a hybrid of working from home and in the office. 
  • Continuing expansion and relocation by companies from out of state moving to Tampa Bay for our business-friendly environment 

What does this mean for Tenants?

  • Tampa Bay is unlike other significant markets such as New York, Los Angeles and Chicago. Although Landlords are being more flexible with the economics of leases, vacancy rates do not compare with other significant markets around the US. Landlords across the country do not have the same motivation to fill vacancies in Tampa Bay as they might be in other parts of the country.
  • Leverage market conditions by taking advantage of available sublease space which can provide more competitive rates, shorter-term and furniture 
  • Evaluate your current office space. If you realize there are inefficiencies, you and #1-sublease a portion if you there a long term remaining on the lease or #2-when your lease ends, move to a more efficient space. 

What does this mean for Landlords?

  • New lease demand grew 6.0 percent from the 1st quarter of 2021. More Tenants expanding in the market and relocating to Tampa Bay from out of state.
  • Adjusting asking rent as a competitive advantage over Landlord’s  who have to maintain their face rates
  • Consider providing more flexible lease terms and concessions, such a rent abatement to accomplish deals
  • Ensure Tenant’s have strong financials with low debt to income ratios when signing new leases
  • Start marketing available space 6 months in advance for under 5,000 SF and 9 months + for over 5,000 SF that is coming available