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2nd Quarter 2020 Office Market Indicators and Report

2019 was a strong year and as we headed into 2020, the market was projected to be steadfast. The pandemic struck mid-first quarter. In second quarter, we came out on the other side of a full quarter in the mist of the pandemic. The market did experience an impact with new leasing demand dropping approx. 50% from the first quarter.

Sublease supply is still down from 2019 due to large companies securing the supply and sublease terms expiring.

New construction has been hyper focused in Hillsborough County, with approx. 1.4 million square feet and approx. 895,000 square feet in the Central Business District.

Here is a recent article we wrote about how the corona virus could change the future of office space. There has been an increase in retail vacancy due to the restrictions especially for small business owners of restaurants and bars. The warehouse sector has experienced explosive growth with increased decreased of service type businesses. Reference our Quarter 4 2019 market report here for comparison.

Important Highlights:

  • Unemployment rate in Tampa Bay increased to to 13.1%, compared to end of Quarter 2019 was approx. 2.7%
  • Tampa Bay’s jobs were impacted with nonagricultural employment decreasing by approx. 7.4%. Job growth based on year-over-year, was experienced in Construction with 300 jobs and Government sector with 100 jobs
  • Class A vacancy increased to approx. 12% by the end of 2nd quarter and Class B vacancy to over approx. 15%.

 

Let’s Talk Rent Numbers

Submarket Overall Average Asking Rent All Classes Overall Asking Rent Class A
Westshore $33.85/sq. ft. $38.00/sq. ft.
Downtown Tampa $34.62/sq. ft. $36.39/sq. ft.
Northwest Tampa $22.00/sq. ft. $24.40/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 $28.20/sq. ft. $31.00/sq. ft.

Construction Highlights:

Despite recent events, Heights Union and SkyCentre One are both projects underway in Downtown Tampa projected for 2020 occupancy and approx. 60% preleased. Midtown has new leases signed by national retailers. Sparkmarn Wharf is renovating the office portion creating 200,000 sf of office space and recently landed Industrious, coworking office space as a Tenant.

2020 3rd Quarter Forecast:

  • Companies may provide more flexible options for employees with hybrid of work from home and the office scenarios.
  • Build outs that were in process to be adjusted to more social distance measures
  • Companies with leasing up for renewal may shift their office footprint to provide an environment where employees feel comfortable and safe in the office
  • The fluidity of Covid will continue to determine the long-term impacts on the office sector as the year continues and the upcoming election

What does this mean for Tenants?

  • Potential opportunity when signing new leases for rental concession such as shorter lease terms, free rent abatement and Tenant Improvement allowance
  • Evaluate if Covid has and will make a lasting impact on your business with work flow layout in the office and number of people who are in the office on a regular basis. Thinking your office footprint may need to adjust in size? Use our calculator here to determine your ideal office space size
  • If you lease renewal is coming up in the next 24 months and unsure about your business’ office space needs? Read this article for 3 keys when determining your next steps. 
  • Now is the time to have a Tenant Representative Broker advocating on your behalf. Having an advisor on your side who has their finger on the market pulse and long-standing relationships with Landlord Agents will deliver the best terms possible.

What does this mean for Landlords?

  • Potential for downward pressure on rents Tenants may be willing to pay
  • 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

What Are My Options to Eliminate My Office Space Rent?

The market has plummeted and now your business is taking a hit. Furthermore, you are not able to go into your office because it is not considered “essential” or out of the risk of your employees’ health and safety.

Every lease is written differently but there could be a few clauses that may be arguable in your favor. We are not attorneys and can’t provide legal counsel, however, we have identified and selected attorneys who are experts in Force Majeure and Impossibility Clause. Below are 3 action steps you can take to minimize any financial overhead you have with your Landlord.

PPP Loan.
The PPP Loan can be used towards office space rent, utilities and interest on a mortgage. If you have not already and missed the first round of funding, take advantage of the second round. You will want to apply directly through your bank. It is recommended you apply through your existing bank.

Make an Appeal to Landlord.
Ask your Landlord if you can forgo rent for the next ninety days. Not all Landlords would be accepting to this but it does not hurt to ask. A way this could be presented is the next ninety days is waved and then owed in addition to your next rent payment. For example, rent for May, June and July could be waved and on August 1st rent May-August will be due. Another scenario, you could tack it on to the end of the lease or spread the rent over the next several months. There are several ways this could be accomplished depending on the Landlord’s appetite and the Tenant’s ability to pay.

Review Your Lease.
As we stated in the beginning, every lease is different. Dig up your lease and you will want to review for two clauses, Force Majeure and Impossibility clause. Both of these clauses could provide means to bring to your Landlord but that would be for a Real Estate Attorney to advise. Force Majeure is defined as “unforeseeable circumstances that prevent someone from fulfilling a contract”. Impossibility is defined as “is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible.”

Additionally, the State of Florida is a very Tenant friendly state in regards to laws between Landlords and Tenants compared to other states. Having a Tenant Representative provides a competitive advantage to understand the pulse of the market and insider only, knowledge. Give our team at Office Space Brokers a call 813-289-3700 or email at cd@officespacebrokers.com to evaluate your company’s office space solution and walk you through this process to minimize your financial risk while you business is at a standstill.

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How Could the Corona Virus Change the Future of Office Space?

Short answer, it’s too early to tell the impact the Corona Virus will have on office space market in Tampa Bay. However, there are a couple of factors based on the shift we have seen with the Corona Virus that could impact office layout, cleanliness and the space requirements. Reviewing the top three factors which were impacted from the Corona Virus were air quality, limiting the touching of common surfaces and shared common areas. Below I have addressed the three different areas and how each could be impacted.

Cleanliness and Air Quality.

Good air quality has already been correlated with productive work environments and minimizes the number of sick days. Air quality improves the over all sense of well-being, focus and productivity. Buildings who have high standards for air quality and circulation will be favored over others. If a technology is created to minimize this impact of virus spread, this could also be a consideration when companies are reviewing which office buildings can provide the safest environment.

Landlords could increase cleaning standards by their janitorial companies in common areas such as fitness centers, bathrooms and elevators. The recent addition of Tenant lounges in office buildings with shared kitchens, meeting spaces and activities will have be evaluated with new cleanliness standards or reconfigured. Tenants who hire their own janitorial services, might have to comply per their lease, cleaning standards within their office suites.

Office Layout.

We have seen the trend of more open work environment shift over the years, some with smaller work areas and bringing people closer together. For example, think of two long tables with employees on each side, creating a community work area that several companies have adopted. Work stations moved into shorter “walls” to create a collaborative and open environment.

The immediate use of small and large conference rooms could be avoided. The changes of the 6 feet in between individuals which has been mandated could translate into the layout and space needed to fit the same 20 people may increase thus, requiring more space allotted per person. Individual offices could return as a solution or larger work stations with taller walls and dividers could make an appearance. Click here to read the average work stations and office sizes and what is your company’s ideal size.

Working From Home.

I have heard some say companies transitioning to working from home could reach a point where production is consistent and the habit of working from home has created a new culture which the staff prefers. I do not believe this 100% work transition will occur, it depends on the industry, company and the culture of the company.

I believe the 100% transition to remote work may be less common, a hybrid of minimizing the number of people in the office and frequency may be more common. The opposite could also be true, realizing the need for in person communication and collaboration is required for productivity.

 

Making  the protection of health and safety of employees a top priority, will reduce risk and position companies to be a top employer of choice in a competitive environment. Having a Tenant Representative on your side will provide an advantage only an expert with their ear to the ground on a daily basis can deliver insight and market specialization. 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

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.