The Tampa Bay, Florida, area is ideal for business. It consistently receives high ratings for quality of life, workforce availability, tax structure, cost of living, cultural activities, transportation and educational opportunities, making it a premier locale in the global marketplace. Recently, Tampa Bay was named one of the top 10 fastest-growing job markets by the U.S. Department of Labor. October's 3.8 percent gain in jobs caused Tampa Bay to rank first on the list. In 2000, Money.com, the Web site fueled by CNN and Money magazine, ranked the Tampa Bay metropolitan statistical area (MSA) fifth in the results of Best Places to Live for cities in the South with less than 3 million people. Forbes magazine picked the area as one of the top 15 spots for business in the United States based on job growth and the number of technological companies. The Greater Tampa Chamber of Commerce's Committee of One Hundred was listed as one of the nation's top 10 economic development groups.

The Tampa Bay area also houses the corporate headquarters of many companies, including Eckerd Drugs, Home Shopping Network, Outback Steakhouse, Publix Supermarkets, Raymond James Financial, Rooms to Go, Tech Data and Verizon. From professional sports teams to golfing, boating, the arts, shopping, tropical breezes and beautiful beaches, there is something for everyone in the Tampa Bay area.

Retail

The greater Tampa Bay retail market encompasses the counties of Hillsborough, Pinellas, Pasco, Manatee and Polk with a total population of 2.99 million. In 2002, the biggest area of growth will be retailers that provide everyday basic needs such as Wal-Mart, Target, Publix and stores like Home Depot and Lowe's Home Improvement Warehouse. Many of these retailers are already taking advantage of lower cost of capital and expanding in the area. Burlington Coat Factory continues to expand in the area, and as of November 2001, the store had secured five locations.

The good news is that the Tampa Bay area continues to attract new residents, increasing the need for retail services. However, the past year has seen its share of pitfalls for retailers such as Roberds, Wards, Frank's Nursery, Scotty's Hardware, Waccamaw/ HomePlace, HomeLife, Upton's and several movie theaters. Traffic has suffered in many of these locations where the anchor has closed. Finding new tenants to fill the vacated spaces and retaining the in-line tenants already in these centers will be a challenge.

The Tampa Bay market has aggressively funded new and expanded road systems fueling residential growth and subsequent retail development. State Road 56, on the border of Northeast Hillsborough County and Southeast Pasco County connecting Bruce B. Downs Boulevard, Interstate 75 and State Route 54, has already fueled over 2 million square feet of proposed retail projects in the area known as New Tampa.

In the Brandon/Riverview area of Hillsborough County, the expansion of State Road 60, Causeway Boulevard 301 and the Leroy Selmon Expressway has led to five new retail projects proposed within a 5-mile radius. In the densely populated Pinellas County, continued work on US Highway 19 is creating a number of redevelopment opportunities with new overpasses and access points.

On September 14, 2001, Taubman Centers Inc., a real estate investment trust based in Bloomfield Hills, Michigan, celebrated the grand opening of International Plaza. This 1.26 million-square-foot super-regional shopping mall is located on Boy Scout Boulevard, minutes from Tampa International Airport, with convenient access from major roadways in the area. More than 100 of the planned 200 stores and restaurants are making their debuts in the Tampa Bay area. New anchors to the area include Lord & Taylor, Neiman Marcus and Nordstrom. As with any new attraction, International Plaza is sure to lure customers away from its closest competitors, West Shore Plaza and Countryside Malls, but once the novelty wears off, the balance should return to normal.

Regency Centers is redeveloping Town Square Center, a 44,679-square-foot center located at the corner of Kennedy and Westshore Boulevard. Regency acquired the property in 1997 when it acquired Branch Properties, L.P., the largest owner and operator of in-fill neighborhood shopping centers in Atlanta. Town Square was a small, old shopping center that was anchored by Kash n' Karry and Rite Aid. Regency tore it down and rebuilt big box and small shop space. The exterior construction is complete, but there is still some interior development to be completed. Regency recently leased space to Pier 1, Starbucks, Alltel and Panera Bread, with some additional shop space for lease.

Office

Even before the horrific events that took place on September 11, the Tampa Bay office market was struggling, and like the rest of the country, it has mirrored the state of the economy. The full effect of these tragic events on the market may not be known for months.

Overall, the Tampa Bay market has performed better than comparable markets across the country, but leasing activity continues to slow and rental rates have fallen. The amount of available direct space combined with today's sublease space of over 1 million square feet has caused this market's supply to be substantially higher than the current demand. These market conditions will continue to give tenants an advantage in negotiating lease terms throughout 2002. Tenants will take advantage of concessions to secure long-term leases at discount rates. Those tenants who desire short-term leases will be able to meet their needs with the abundance of sublease availability. Landlords will continue to compete for credit-worthy tenants, but will be reluctant to tie up long-term leases at bargain rates.

Rental rates continued to decrease slightly in the third quarter of 2001. The Westshore submarket continues to be the leading submarket in Tampa and the state.

Corporate Center II is the newest addition to the Westshore submarket. This 10-story, 286,111-square-foot Class A office building is located at the corner of Columbus Drive and Boy Scout Boulevard. This is the second of five office buildings in this area planned by Crescent Resources, and rents are over $23 per square foot. Walter Industries, Inc. will be relocating its Tampa headquarters to the new location. They have leased approximately 78,000 square feet. T. Rowe Price recently signed a lease for 60,608 square feet and is planning to take occupancy at Corporate Center II in August.

Located at Rocky Point, Harborview Plaza is planning a February completion. This seven-story Class A building constructed by Highwoods Properties Inc. has a total of 211,834 square feet. Earlier this year, IBM became Harborview's largest tenant, leasing 163,585 square feet.

Vacancy rates as a whole have remained steady, but are expected to increase over the next two quarters, as corporate earnings remain under pressure, and layoffs rise, leasing activity will be reduced, further boosting the inventory of sublease space. Despite increasing vacancy rates, slowing absorption, dropping rental rates and decreasing construction, Grubb & Ellis believes that a turn around is in sight. The company anticipates the Tampa Bay area will be in a recovery phase by mid-2002. The Tampa Bay area continues to have great appeal in attracting new business, and if history is any indication of the future, the Tampa Bay market will move from a recovery phase to an expansion phase earlier than the rest of the country. New construction projects should start in late 2002 and early 2003.

The short-term opportunities for developers will be build-to-suit projects, with the most likely tenants being investment grade companies or government enterprises. With the availability of land, the I-75 corridor once again is expected to have the largest amount of growth in build-to-suit construction. Developers will also concentrate on mixed-use facilities, combining office buildings with upscale restaurants, retail stores, and apartments or condominiums, all within the same complex to provide a community environment.

Grubb & Ellis expects the economy to stabilize in early 2002 and then resume a slow growth throughout the balance of the year. There will be a gradual increase in demand during the new year for office space, which will effectively reduce the inflated vacancy availability. Potential tenants, who are alert to the subtle changes in the market, will take advantage of the availability and the lower rents, helping to create even more demand. As demand increases and vacancies drop, a return to a more normal development cycle is expected to resume in 2003.

Industrial

The industrial market is hanging on even after September 11. Third quarter 2001 was hit the hardest. In a market where 145 million square feet are tracked, the third quarter took a 964,000-square-foot net absorption loss. Though this may seem drastic at first glance, it is less than 1 percent of the total inventory. The total year-to-date net absorption loss is 2.3 million square feet. This translates to a 1.6 percent net absorption loss, or a current vacancy rate of 8.56 percent in the industrial market as compared to 6 percent a year ago.

It might appear that this is a dismal report; however, indicators now seem to suggest that the worst is over and rebuilding is beginning. This will be a slow process in this market. New projects have been put on hold until there is a definite sign of recovery. Interestingly, projects that were started have continued to be built or have been completed. Most of the activity stems from the REITs. The most recent projects completed by Duke Realty include Lakeland Interstate Business Park and Fairfield Distribution Center, which add a total of 413,000 square feet to the market. First Industrial Realty Trust will add another 200,000 square feet with its completion of FirstPark @ Bridgewater.

The Tampa Bay industrial market is segmented into 11 submarkets, with two in Pinellas County, eight in Hillsborough County and one market for Polk County. While most markets have held to the figures shown above, the East Hillsborough and Polk submarkets have been affected the most. In the early part of 2001, these submarkets saw the most development and by the end of the year they also saw the highest vacancies. Currently these are the only markets that are faced with double-digit vacancy rates.

On the other hand, Pinellas County is still is experiencing a 5 to 6 percent vacancy rate and the Tampa airport market is experiencing 6 to 7 percent vacancies.

Comparing these numbers to the vacancies the area saw in the early part of the 1990s, these figures are impressive. Tampa is not experiencing a recession, but is seeing a correction. Having taken place, one can only assume that there will be a certain amount of waffling with the statistics and then occupancy rates will climb. Barring any negative war conditions, the climb should begin by spring, and the pattern will be evident by mid-year.

The industrial market in Tampa Bay is strong. It is adjusting to the new conditions of our economy, but it has and will survive and flourish. Business is strong as well as attitudes.

Office Investment

Total real estate investment sales in the Tampa Bay area increased almost 10 percent between 1999 and 2000, from $948 million to $1,048 million. By the end of third quarter 2001, investments in the Tampa Bay area dropped significantly from the previous year. The volume of investment sales for the Tampa Bay area at the end of the third quarter 2001 totaled $465 million. During the same time period in 2000, the total investment sales reached $711 million. This marks a 35 percent decline.

The decrease in investments is a direct result of the slowdown in our economy and the uncertainty of real estate in investors' eyes. Many companies, including dot-coms, have had to lay off employees and/or close down operations, and the resultant vacancy in the office market has dampened investor enthusiasm for office properties. The Tampa Bay area has also experienced similar market conditions, but in spite of the national economic malaise, the Tampa Bay area is successfully transitioning from low-wage call centers and service jobs to growth in higher-paying financial services and a small, but expanding, technology sector.

Grubb & Ellis projects that Tampa Bay, typically known as a secondary market for investors, will experience high job growth in the primary office-using sectors of the economy over the next few years, which will improve the office investment outlook.

Past Activity
Cap rates and the average price per square foot have risen from 1999 to present. Capitalization climbed because buyers require a higher return on their investment in light of softening economy. rise stems sellers demanding values forreal estate due lower interest rate financing continuing demand downtown quality suburbanoffice products with strong tenant bases stable income streams.
Current Activity Compared number transactions 2000 2001 dropped significantly. This shows how September 11 catastrophe combined an already weakened economy exacerbate depressed community.
Future Activity Based excellent prospects company relocations increased population job growth Tampa Bay areaproperties will stabilize emerge recession earlier than most country.

Retail Investment The good news is the Tampa Bay retail market is stable; the bad news is that retailers may be in for tough times. As the year progresses, it will become more apparent how the events of September 11 will affect Tampa Bay in the long term. Tampa Bay has been less likely to experience deep downturns as other national metropolitan areas and the area will return to normal faster. The Tampa Bay area saw a different kind of buyer during the first 6 months of 2001.

In previous years investors were institutions, pension funds and REITs. At the end of 2000 and during 2001 the investors have become partnerships, real estate investment companies and other private ownership structures.

During times of economic turmoil, properties such as grocery-anchored neighborhood shopping centers are typically favored among investors because of increased sales volume during economic volatility. Malls, lifestyle centers and, to some extent, regional centers will be affected more than discount and grocery centers if we have an extended recession.

This is already reflected in investor purchases as capitalization rates are inching upward in all types of retail centers, with the exception of grocery centers. Average cap rates for grocery centers are in the 9.5 to 9.7 percent range, while regional centers are above 10 percent. This occurs when gaps between buyer and seller expectations begin to close as the recession continues. Buyers want to price weaker leasing markets into their sales prices, while sellers resist, stressing that the weak leasing market is temporary.

In our country's present situation, faced with a heightened level of uncertainty about domestic security, the current war and the timing of an economic recovery, it is difficult to predict what lies ahead. In the investment market overall, however, we foresee in 2002 that investors will remain cautious, but still active, looking to take advantage of opportunity transactions and low interest rates.

The following members of the Grubb & Ellis staff contributed to this article: Lill Hanson and Ben McLeish, retail group; Gerard Crum, senior vice president and John Long, vice president, office group; Bob Zegota, CCIM, vice president, industrial group; Sheriar Khorsandian, vice president, investment group investment sales; and Brent Lindsey, CPA, investment group.


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