Chelsea Drinkard No Comments

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. 

Chelsea Drinkard No Comments

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
Chelsea Drinkard No Comments

1st Quarter 2021 Office Market Indicators and Report

Important Highlights:

Tampa Bay:

  • Unemployment rate in Tampa Bay decreased to 4.2% in February 2021, compared to the end of 4th Quarter 2020, which was approx. 5.9%. Non-agricultural employment sector decreased and Financial Activities, Professional & Business Services and Construction were amongst the top sectors which gained jobs.
  • “The annual Cost of Living Index reported the Tampa metro area as one of the most affordable metros in the US. With a cost of living lower than the national average, Tampa Bay remains to be an attractive place for new residents and companies looking to relocate.”
  • Zillow listed Tampa amongst five markets it expects to be the hottest in 2021.
  • Class A vacancy increased to approx. 14% by the end of 1st quarter and Class B vacancy fell to 15%.

Office Market:

  • New lease demand was up by approx. 120% in Hillsborough and Pinellas County.
  • Office supply increased due to large sublease blocks on the market and over 570,000 square feet of new construction deliveries by Heights Union West (Tampa Heights), Sparkman Wharf (Channelside) and Renaissance Center VII (Northwest Tampa). 

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Westshore $33.24/sq. ft.  $37.12/sq. ft.
Downtown Tampa $36.33/sq. ft. $37.95/sq. ft.
Northwest Tampa $24.20/sq. ft. $26.90/sq. ft.
South Tampa $27.64/sq. ft. N/A
I-75 Corridor $25.08/sq. ft. $27.14/sq. ft.
Downtown St. Petersburg $31.11/sq. ft. $27.06/sq. ft.

Construction Highlights:

  • New construction Landlord’s adjusted asking rents which impacted the direct asking rents across the Tampa Bay Market.
  • SkyCenter One, 270,000 square feet of new office space building under construction at the Tampa International Airport, 384,000 square feet Water Street project in Downtown Tampa and the 384,000 square feet Midtown project, just North of the Westshore submarket, continue to announce national Tenants and are slated to be completed by end of 2021.

2021 2nd Quarter Forecast:

  • Total vacancy is expected to rise as current construction projects are slated to deliver in either Q2 or Q3 of this year
  • Continued relocation and expansion of companies into Tampa Bay do to our more cost-effective real estate options, Florida’s favorable regulations for business and as always, the great weather .
  • Continued increase in sublease space, especially larger block 20,000 RSF and up hitting the market as the work from home trend continues and companies evaluate their office space footprint.
  • < 5,000 RSF subleases will be subleased by companies who want to leverage the market and thus will move quicker than larger spaces.
  • Companies will be rolling out transition plans back into the office fulltime or a flex schedule. Privately held companies may transition faster than publicly traded due to the amount of decision makers involved and size of the company.

What does this mean for Tenants?

  • Evaluate your current office space floor plan and if employees wish to work remotely or in the office with what’s best for the company. Potentially moving to a flex schedule of part-time working from home and in the office can provide an alternative solution to maintain office culture while maintaining the benefits of working from home.
  • If minimizing your office footprint is the right decision there are two solutions: sublease the entire or a portion of their suite. Both scenarios will minimize the monthly financial burden
  • If evaluating relocating your office, take advantage of the short term and lower monthly rent of sublease office space on the market

What does this mean for Landlords?

  • Adjusting asking rents to stay competitive in the market
  • Consider 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
Chelsea Drinkard No Comments

3 Office Space Design Strategies To Minimize The Potential Spread of Covid

Being mindful of long term implications of Covid, the impact on your employees and office space, is a key to consider when evaluating your office space layout. 

Here are three design and layout strategies which could minimize the influx of large groups of people congregating in common areas or for employees feeling uneasy to return to work.

1) Individual Offices for Employees

The past few years an open office layout was trending for companies to create collaborative workspace areas. Going back to having employees with their own individual offices will limit exposure and minimize the amount of air being shared amongst other employees. With a surplus of subleases 

2) Tenants Have Their Own Bathrooms and Kitchen

Having a space that provides the Tenants with their own kitchen in a Full Service building is something you typically see across Tampa Bay in Westshore, Downtown Tampa and Downtown St Petersburg. Larger Tenants, when negotiating their build out in a Full Service building could have a restroom added to their build out. Negotiating any real estate transaction boils down to the economics of the deal. 

Ensuring your own restrooms is usually common for single story or single Tenant buildings. If having your own restroom is important, this will restrict what buildings you will be evaluating when touring. Considering a sublease space might be a viable option for your company! 

3) Tenant has their own entrance into the building

Similar with sharing bathrooms in a Full Service building, sharing common area entrance, lobby and even Tenant lounges or conference centers is an amenity in Full Service buildings Landlords have added. To minimize the influx of people in these areas at the same time or multiple people using the same area at different times, leasing a building where each Tenant has their own entrance will minimize any shared space.  Having your own entrance into a building is achieved by leasing a single Tenant building, meaning, you are the only Tenant leasing in the building or a building which has walk-up entrances with no common area lobby is shared. 

No one has all the answers, however; the health and safety of employees should be a top priority.  By taking the necessary precautions it will satisfy the employees and avoid adding to the surplus of sublease space. Give our team at Office Space Brokers a call 813-289-3700, for a consultation to strategize your company’s office space steps.

Chelsea Drinkard No Comments

4th Quarter 2020 Office Market Indicators and Report

Important Highlights:

  • Unemployment rate in Tampa Bay decreased to 5.9% in November 2020, compared to the end of 2nd Quarter 2020, which was approx. 9.0%. Non-agricultural employment sector decreased and manufacturing and wholesale were amongst the top sectors which gained jobs.
  • New leases were down by approx. 50% in Hillsborough and Pinellas County for 2020 compared to 2019.
  • Office supply increased due to large sublease blocks on the market and over 570,000 square feet of new construction deliveries by Heights Union West (Tampa Heights), Sparkman Wharf (Channelside) and Renaissance Center VII (Northwest Tampa).
  • Tampa-St. Petersburg-Clearwater combined statistical area fourth in the U.S. in terms of the biggest net inflow of new residents. Tampa Bay gained about 47,000 people last year
  • Class A vacancy increased to approx. 14.2% by the end of 4th quarter and Class B vacancy to over approx. 15.9%.

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Westshore $33.51/sq. ft. $37.06/sq. ft.
Downtown Tampa $35.84/sq. ft. $38.33/sq. ft.
Northwest Tampa $23.83/sq. ft. $26.31/sq. ft.
South Tampa $27.03/sq. ft. $30.25/sq. ft.
I-75 Corridor $24.39/sq. ft. $26.39/sq. ft.
Downtown St. Petersburg $30.26/sq. ft. $31.78/sq. ft.

 

Construction Highlights:

  • New construction Landlord’s adjusted asking rents which impacted the direct asking rents across the Tampa Bay Market. 
  • Record high since 2008 of new construction delivered to the market.
  • SkyCenter One, 270,000 square feet of new office space building under construction at the Tampa International Airport, 384,000 square feet Water Street project in Downtown Tampa and the 384,000 square feet Midtown project, just North of the Westshore submarket, continue to announce national Tenants and are slated to be completed by end of 2021. 

 

2021 1st Quarter Forecast:

  • Continued increase in sublease space hitting the market as the work from home trend continues and companies evaluate their office space footprint
  • Redevelopment of shared Tenant “Touchless entry, access, and reservation systems could take off, with personal devices replacing building IDs, security cards and elevator access systems, as well as traditional ways of reserving conference and amenity space.”
  • Zillow listed Tampa among the five markets it expects to be the hottest in 2021 which is an indicator of companies relocating or expanding into Tampa. 
  • Transition of flexible schedules mixed with working from home and in the office, hot desks can be a solution versus dedicated offices or workstations. Hot desk, a shared workstation or office with other employees who are in the office on different days of the work, allows for a smaller office footprint.

What does this mean for Tenants?

  •  If a Tenant determines minimizing their office footprint is the right decision there are two solutions: sublease the entire or a portion of their suite. Both scenarios will minimize the monthly financial burden 
  • If a Tenant is willing and able to sign a 5+ year lease, they are in a position of strength with increased probability to receive rent concessions
  • Evaluate whether moving into a sublease versus a direct lease with a Landlord is the right solution to take advantage of discounted rental rates and favorable terms of subleases (lower rent, shorter term, furniture etc.)

What does this mean for Landlords?

  • Adjusting asking rents to stay competitive in the market
  • Determine solutions for long term implications of Covid with repurposing empty space in multi-Tenant buildings and update air quality and filtration systems
  • 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