The year 2000 was fruitful for Tampa's real estate market as the Bay area enjoyed continued growth resulting from the prosperity of the past three years. Leasing activity remained fairly strong throughout the year due to the success of established companies and the influx of new businesses. Reasonable rental rates, low cost of living and year-round sunshine contribute to the increased popularity of the Tampa Bay area. In the first quarter of 2001, the Tampa market, relatively immune to some of the national trends sweeping the nation, fared well overall.

Office

Leasing activity reached nearly 4 million square feet in 2000, with a positive net absorption of 1.3 million square feet. Class A space finished the year strong in net absorption, totaling 287,298 square feet, and the average asking rental rate increased from $23.20 to $24 per square foot. Favorable market conditions in the area produced a demand for new office product in 2000, and nearly 1.1 million square feet of new construction occurred. Two large additions included the new build-to-suit buildings for Intermedia Communications, totaling 370,000 square feet, and the Fountain Square III building for Chase USA. Chase Manhattan also completed a 450,000-square-foot building in Highland Oaks in February.

Tampa was able to avoid the large accumulation of vacated dot.com space from entrepreneurs unable to meet lease demands, but the Bay area has had its fair share of subleases come online in the first quarter of 2001. The perceived slowing of the economy and company layoffs contributed to a 34 percent increase in subleases during the first quarter over year-end figures. However, rental rates remain steady, and leasing activity is stronger than it was at the beginning of 2000. Over the past two years, asking rental rates for Class A buildings in Tampa have remained relatively stable, and Class B rates have continued to climb.

Although the heightened concern is forcing some developers and landlords in Tampa into a ¹wait and see' mode, there are several proposed and planned projects currently under consideration. In Westshore, Crescent Resources is almost finished with International Plaza Corporate Center II, a 285,000-square-foot Class A facility scheduled for completion in October 2001. Corporate Center I, completed in October 1999, is currently 99 percent leased. This second building features a 3,000-square-foot caf and a 4,000-square-foot full service fitness facility with licensed trainers. "As soon as the second building is 50 percent leased, we'll begin the third. We're still seeing good activity in the market because there's a need for large floor plates, higher parking ratios and excellent amenities, which is what we're providing," said Ron Ruffner with Crescent.

Additionally, Bromley Company is introducing Tampa Bay One to the Westshore area. The project will consist of 700,000 square feet of new office space in two towers, in addition to a 300-room hotel with 40 condominiums, 280,000 square feet of retail, and three parking structures. Tampa Bay One is planned, but not currently under construction.

In Tampa's Central Business District, The Hogan Group has plans for Heritage Park, which consists of three high-rise office buildings totaling 1 million square feet. The property will include ground level retail stores, a bank, restaurant and four-acre public park. In addition, Hillsborough River Realty/The Jeffries Companies has plans for Hillsborough River Tower at Kennedy Boulevard and Parker Street. Hillsborough River Tower, a 920,000 square foot, 41-story office tower, will include conference facilities, an exercise center, daycare, two restaurants, and a dry cleaner, in addition to other amenities.

Industrial

Low land prices and impact fees inspired REITs and investors to produce over 2.1 million square feet of new industrial product in 2000. The area's low cost of living continually attracts an influx of skilled workers, and companies were able to capitalize on the labor available for call centers. Smaller companies like Eagle Global Logistics and Aerosimulation find that the Tampa Bay area is an invaluable option for affordable industrial space.

After a solid year in 2000, Tampa industrial properties are now beginning to experience the repercussions of the economic downswing that has affected the national real estate market. Although leasing activity was up 21 percent in 2000 from the year-end 1999 figures and absorption remained positive through the first quarter of 2001, demand has been slightly weakened by the status of the national economy. "The unprecedented growth due to the stock market boom and low unemployment rate throughout 1998 and 1999 came to a halt during the second half of 2000," said Jim Paladino, director of industrial brokerage at Cushman & Wakefield. "Tampa's industrial market closely mirrors what is happening in the rest of country, and landlords and developers are concerned about absorption for the remainder of 2001."

New construction has dominated the industrial landscape for the last three years, primarily on the Eastside. Eastgroup's newest development is the Palm River North property located in the Eastside submarket. Palm River North I, the 96,000-square-foot, dock-high, rear load building completed in the first quarter of 2000, was fully leased by Qwest Communications upon completion. However, the 20,000-square-foot service center building on the property is currently 20 percent leased, and the second dock-high building, completed in September 2000, is only 25 percent leased. "Since the fall of 2000, there has been a considerable decline in interest, especially from national companies. Brokers are capitalizing on activity from local and regional companies in need of warehouse and service center space, but the overall pace of inquiries in Hillsborough County appears to be remaining stagnant through the second quarter," said Nancy Phaneuf of Eastgroup.

Retail

Rental and occupancy rates remained steady throughout 2000 in Tampa's retail market. Its conservative approach to development has fared well, providing protection from the oversupply that occurred in the late 1980s. The balance between retail space supply and demand can largely be attributed to the 75 percent pre-leasing requirement established by lenders who are only willing to fund projects with creditworthy anchor tenants. The majority of the retail growth is taking place in neighborhood communities such as northwest Hillsborough County, where new centers are a low risk proposition because the anchor grocer tenant assumes a majority of the gross leasable area.

The most significant new retail development in Tampa Bay is the International Plaza, a 1.2 million-square-foot lifestyle regional mall located near Tampa's International Airport. Scheduled to open in September, this mall developed by The Traubman Company, is bringing high-end retailers such as Nordstrom, Lord & Taylor and Neiman Marcus to Tampa. Other significant developments include the opening of Centro Ybor, a 240,000-square-foot retail entertainment center located in Ybor City, the historic district near downtown Tampa. Channelside at Garrison Seaport, an entertainment/retail complex containing a movie theater, shops and restaurants along the river, opened in March of 2001, and The Bay Walk development located in downtown St. Petersburg provided a much needed entertainment venue for Bay area residents.

"Although the vacancy rate increased by one percent from the first quarter of 2000 to the first quarter of 2001, occupancy remains at a healthy 92 percent," said Patrick Berman, retail specialist at Cushman & Wakefield. "Deals are taking longer to consummate and landlords are forced to give more concessions such as free rent and tenant improvement dollars, but rates are expected to hold steady through the second quarter and increase sometime in the third quarter."

MultiFamily

Job growth in the Tampa Bay area over the last few years has drawn much attention to the Bay area's multifamily market. Developers continue to add units with a steady pace of new projects, focusing primarily on the northeastern part of Hillsborough County, referred to as New Tampa, and Brandon, just east of the Central Business District. Both areas are within close proximity to employment centers. Additionally, development has continued in the CBD, with Post Properties' Harbourplace development completed in the third quarter of 2000. Several submarkets have experienced rapid growth and therefore, a limited period of softness. However, absorption remains strong, and the market is expected to ¹firm up' through the end of the year.

Several trends are visible in the multifamily market. Investors are actively pursuing well-positioned older vintage properties. The opportunity to reposition assets and generate opportunistic returns is very attractive to investors across the board, be it private investors, opportunity funds or institutional investors. During the past year, location and demographic trends in the Tampa Bay area have been deciding factors. There has been an aggressive pursuit of late 1970s and 1980s vintage assets that can be repositioned to compete with newer Class A assets. Pinellas County, the most densely populated county in the State of Florida, is also high on most investors' lists. The lack of available sites for new development is driving the value of older, well-located properties in the Clearwater-St. Petersburg markets.

Pinellas County offers residents a tremendous lifestyle, with its convenient location between employment centers and the Gulf beaches. The area is seeing an increased migration of younger professionals and families that want to take advantage of the lifestyle and amenities across the Bay.

In the past year, several rental communities that were converted to condominiums were available for purchase. Crescent Heights acquired Island Walk and Island Place on Harbour Island, and has enjoyed a very brisk level of sales activity. The only high-rise rental property in South Tampa, 345 Bayshore, was recently sold by a fund advised by SSR Realty Advisors to a private partnership in the northeast. The original developer, The Wyntonn Group, designed the project as a condominium, so the exit strategy for the new owner should be sound.

Investment Sales

Sales activity in the Tampa area has not been as vigorous as in past years. The volume of transactions has decreased due to a number of factors prevalent in similar markets across the country. The office market has been experiencing a rising level of available space, especially sublease space made available by companies either downsizing or not growing at expected levels. The increasing vacancy level has caused investors to be more hesitant, though the cautiousness should be a short-lived phenomenon. Investors are looking for well-located assets with minimal near term rollover exposure. Capitalization rates are anywhere from 50 to 100 basis points higher than where they were 12 to 18 months ago. USAA Realty purchased the First Union Center in the Central Business District; a fund advised by RREEF was the seller. Denholtz Associates of New Jersey acquired The Times Building, which is also located in the City's core.

Industrial continues to be a highly sought after product type. In the second half of 2000, LaSalle Investment acquired two properties on behalf of its investment fund, the California Public Employees Retirement Services (CalPERS) fund, one of which was Hampton Oaks, a 260,000-square-foot service center property on the City's Eastside. LaSalle also acquired a newly developed build-to-suit facility that was sold by ProLogis. First Industrial Realty Trust has been active in the market, both as a seller and a buyer, and they recently acquired the Breckenridge Park project, sold by Cigna. Institutional Investors continue to look for industrial opportunities in Tampa, with little in the way of assets available for sale.

Overall, the investment climate in the Tampa Bay area appears to be strong. There will most likely be a heightened level of activity in all sectors of the market in the second half of the year. All indicators appear to be favorable for another solid year.

Jubeen Vaghefi is senior director, financial services for Cushman & Wakefield in Tampa, Florida.


©2001 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.