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1st Quarter 2022 Tampa Bay Office Market Report and Q2 Forecast

gray building

Important Highlights:

Tampa Bay:

  • Office vacancy rates in Tampa are around 13.4% for all over class buildings 
  • The unemployment rate in Tampa Bay has decreased to 3.50% in January 2022, compared to the end of the 4th Quarter 2021, which was approx. 4.8%. Compared to the national average which is 3.6%
  • Tampa Bay is third in the nation among the fastest-growing metropolitan areas for entrepreneurs

Office Market:

  • As everyone is still recovering from the pandemic, more companies are continuing to make decisions of going back to office full time, testing flex working schedules and making their office space decisions of relocating, expanding or consolidating their office if their lease is ending in 2022.
  • Despite the fact that there was a substantial amount of sublease space on the market, absorption in Q4 2021  was positive, this was mostly due to the smaller block sublease space being leased by Tenants with short lead times and/or new companies moving into the Tampa market.
  • The most significant activity was for office spaces Downtown Tampa and secondly in Westshore for 1,000 SF-5,000 SF spaces. Companies have delayed their decisions with relocating their offices as they continue to maneuver the changing of their office environment, leaving short time frames before leases end. Landlords who have move-in ready spaces experienced a competitive advantage to capture Tenants who had quick timelines for identifying a new office before their current lease ends.

 

Let’s Talk Rent Numbers:

Submarket Overall Average Asking Rent-All Classes Overall Asking Rent Class A
Westshore $34.15 Sq. Ft.  $37.99 Sq. Ft.
Downtown Tampa $36.31 Sq. Ft. $37.98 Sq. Ft.
Northwest Tampa $24.12 Sq. Ft. $26.96 Sq. Ft.
South Tampa $27.48 Sq. Ft. N/A
I-75 Corridor $25.26 Sq. Ft. $28.06 Sq. Ft.
Downtown St. Petersburg $30.89 Sq. Ft. $31.76 Sq. Ft.

 

Construction Highlights: 

  • In Hillsborough County, there is new construction at 1001 Water Street in the Central Business District (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 be delivered by the end of the year. About 900,000 SF of new construction coming to the market by 2022.

2022 2nd Quarter Forecast:

  • As new construction underway is projected to be completed by the end of the year, total vacancy is expected to climb with the increase of available space coming to market. 
  • Flex schedules will continue to be experimented with a combination of working from home and in the office. Companies who have delayed their relocation and expansion decisions, may experience limited available options and lose leverage when negotiating when facing such short timeframes. 
  • Companies from out of state will continue to expand and relocate to Tampa Bay because of our business-friendly atmosphere and Tampa Bay was voted the number one sports city in 2021. Click here to read more about why so many businesses are moving to Tampa.

    What does this mean for Tenants?

  • Vacancy rates do not comparable to other key markets in the US, despite Landlords being more liberal with lease economics. Landlords in Tampa Bay are not motivated in the same way that they are in other parts of the country to replace vacancies. 
  • Tenants can leverage market circumstances to their advantage.
  • companies need to examine their current work environment and engage in employee feedback. Feedback will bring clarity to their developing office space culture and the role it plays in the overall health of their company. 

 

What does this mean for Landlords?

  • Demand for new leases increased by 8.0 percent in the first quarter of 2022. More out-of-state tenants are still expanding in the market and migrating to Tampa Bay. 
  • Adjusting the asking rent to gain a competitive edge against Landlords who must keep their face prices.
  • Provide more flexible lease terms and discounts, such as a rent reduction. 
  • Start promoting available space 6 months in advance.
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What To Do When Facing Difficulty Forecasting Your Office Space Needs:

Finding a home for your team is important because, in both business and real estate, location is everything. In addition to selecting a suitable location, it is critical to select the proper building for your business. You could locate a fantastic small space for rent on a busy street, but what if the structure itself isn’t suitable for your company or its clients who visit? That’s why there are 5 important steps to consider before finding your perfect office space:

 

Find A Tenant Representative

Choosing the right Tenant Representative is one of the most critical decisions you’ll make when it comes time to leasing. A competent agent will assist you in navigating the leasing process to increase efficiency, leverage their market knowledge for your benefit, and ensure you are equally represented, just like the Landlord is represented by their Listing Agent. As the market ebbs and flows, there can be different nuances and market trends only a commercial agent, who is in the space day in and day out, is aware of. 

 

Budget

First understanding what your budget is will determine what Submarket in Tampa you can evaluate. Our highest price per square foot markets in Tampa are located in Westshore and Downtown Tampa. Knowing your budget will save time from considering office space. Understanding the three different types of lease structures is very important so you can understand what is included in the monthly rents you are reviewing. Read more about the three different types of leases here.

 

Location

Budget can determine location since each submarket’s rental rates are different. Downtown Tampa and Westshore rents are drastically different than Carrollwood or Wesley Chapel. Location can also be determined by where your employees are located and if clients are coming to your office.

A few questions to consider:

  • Where are the majority of employees commuting from? Where are you focusing on for hiring?
  • Do you want to be close to major highways for ease of access for employees and clients? 
  • What is the culture of your office? For example, if the majority of your employees live in Downtown Tampa and part of the culture is walking or biking to the office and taking advantage of the Tampa Riverwalk, restaurants and bars moving or keeping your office in this location is part of your company culture. Being in a location where employees desire to be or already live can bring an overall sense of satisfaction.

 

What Kind of Layout Do do You Need For Your Team To Thrive?

Was your office previously all remote and scaling folks back into the office? Determining if you will continue a flex office schedule can minimize the amount of space you need. A “flex office schedule” means you have folks coming into the office and on different days and evenings designing your office space where there are “hot seats” where different people are using the same workstations for offices. 

  • Do key people need offices vs workstations?
  • Are our individual flex rooms needed for Zooms calls or phone calls?
  • Are our smaller meeting spaces required for team break-out meetings?
  • Do you want to create spaces for your team to naturally collaborate?
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What Are Spec Suites?  

 


What Are Spec Suites?  

Speculative Suites is an office space designed to demonstrate to prospective renters what the office space may look like. While the finer specifics of what exactly makes a spec suite differ from each Landlord, at its most basic level, a spec suite is a place where the Landlord has invested construction expenditures ahead of time to have the room in move-in ready shape by creating an effective layout for the space, paint, and floors based on current market trends.

 

Who Are Spec Suites For:

Small to mid-sized Tenants with standard office space requirements are best served by spec suites. They’re especially appealing to Tenants who need to move in quickly, generally within three months or less since the office space is in a move-in ready condition.

 

Benefits of Spec Suites:

One of the main advantages of leasing a spec suite is that it reduces your out-of-pocket expenditures for building and finishing. Furniture and construction costs have been steadily rising, making new office development prohibitively expensive. Spec Suites are usually furnished and ready to move in, allowing Tenants to enjoy new, high-quality furnishings without having to pay for them out of pocket. 

For firms who need to be in their new office fast, Spec Suites might be a terrific solution. Depending on the extent of construction required, a new office build-out might take anywhere from 2 to 8 months to complete. The period between signing a lease and moving in can be greatly reduced with Spec Suites. Landlords create select “spec suites” to provide move-in ready options for Tenants who have a quick time frame to occupy quickly. Delayed permits have recently played a role in having quick occupancy options. Some companies are waiting to make a decision (due to uncertainty in their business) having an easy option can give Landlords a competitive advantage to win the deal.

 

Downfalls Of Spec Suites:

A downside of spec suites is the lack of control over the space’s appearance and feel. The Landlord has already chosen the spec suite’s design and finishing and typically may not invest additional money into the space unless the Tenant is willing to cover the cost of signing a longer lease.

 

 

A Tenant Representation Broker can walk you through if a spec suite is a right solution for you. Give Office Space Brokers a call at 813-289-3700.

 

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2024 Sales Tax On Commercial Leases

Surprise to companies who expand or relocate to Florida, Florida is the only state that charges sales tax on commercial leases. Each year this number can fluctuate based on the decisions in Tallahassee and typically is in effect first quarter of the following year. Sales Tax was adjusted in December of 2023 and adjusted again starting June 1, 2024 to reflect the below. View the document from the Florida Department of Revenue here. 

As you see in the below graphic, each county has their own additional taxes that are included in this number. Historically, Hillsborough County is one of the highest.

 

Always consult your CPA for tax advice especially for in municipalities that collect other taxes such as nuances in Oldsmar, Tarpon Springs, Wesley Chapel and Zephryhills.

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Downfalls of Subleasing Office Space

Subleasing office space can offer a more superior building at a lower monthly rent, providing the Tenant the ability to be in the building they desire without the hefty price tag, flexibility of a shorter term and even use of existing furniture. 

There are rights a Tenant, who decides to sublease their space, gives up when subleasing their space. These “rights” are usually located in the “Sublease” clause in the lease between the Landlord and Tenant. 

Two main examples of building signage and an option to renew the lease. 

  1. Right of building signage is more common for a Tenant who is leasing at least a full floor of a building. 
  2. Renewal options are more common in every lease. A renewal could say, “Tenant has a one time option to renew their lease at the current market rate.” If the Tenant decides to sublease their space, majority of the time, the option of the renewal is not passed through to the Sublease. 

What does this mean for a Subtenant?

Any terms that were agreed upon for a renewal, the Subtenant does not have a right to and is subject to whatever the current market rate and how the Landlord is marketing the building. 

There are two potential issue could arise when not having a renewal option:

  1. A Tenant in the building could have First Right of Offer to the said sublease space at the end of the term, this Tenant has first position and priority over the Subtenant, to lease the space.
  2. The current market rate could be higher than the Subtenant’s budget. If the Subtenant would like to move into a relationship as Tenant to the Landlord but cannot afford a direct deal the Subtenant will have to relocate. 

 Having a Tenant Representative can bring clarity when evaluating the best decision for your business to choose a sublease or a lease a space directly