SOUTHEAST SNAPSHOT, JUNE 2005

Tampa Office Market

Tampa, Florida’s office market began to register improvement in 2004, a trend that, based on the current market statistics, will continue in 2005. Market fundamentals are likely to improve due to several converging factors. First of all, completions are projected to be less than half of forecast net absorption, setting the stage for a 150-basis point vacancy improvement to 14.9 percent. In addition, deliveries of competitive office space will slow in 2005, dropping from 400,000 square feet in 2004 to an expected 375,000 square feet this year. The largest noncompetitive completion in 2005 will be a 515,000-square foot build-to-suit for Nielsen Media Research in Oldsmar, Florida. Secondly, the Tampa area’s stature as a preferred location for back-office operations will continue to lure new office-using businesses. Expanding office-using firms added more than 12,000 workers last year, producing net absorption of 690,000 square feet. In 2005, Tampa will lead the nation in office job growth with office-using firms adding 25,000 jobs, a 5.6 percent increase. Total employment growth in the Tampa metropolitan statistical area is expected to increase by 3.7 percent, or 46,000 positions. Finally, existing office-using firms appear to be expanding; employment in the office-intensive professional and business services sector is forecast to increase 7 percent this year. Surging job growth will lift net absorption to more than 900,000 square feet, the highest level since 2000.

Owners should be able to reclaim some pricing power in the near term. Effective rents are forecast to rise 1.9 percent in 2005 to $15.67 per square foot. The Westshore submarket, in particular, might be a place where higher rents can be realized. Asking rents in the Westshore submarket are the highest in the market, averaging more than $20 per square foot. Vacancy in the Clearwater submarket improved 150 basis points last year, and rents were beginning to climb.

The median sales price will continue to climb. After rising 23 percent in 2004 to $105.13 per square foot, the median sales price for 2005 is projected to rise another 9.6 percent to $115.17 per square foot.

In the Tampa office market, 1.8 million square feet of office space will be delivered this year: 302,000 square feet of presumed competitive space; 366,000 square feet of medical offices; and 1.1 million square feet of presumed owner-occupied buildings. Several large projects currently are being completed. In North Pinellas County, Nielson Media Research will have a 147,000-square-foot project complete in June. MacDill Federal Credit Union owns a 125,000-square-foot building in the East Tampa submarket, which was finished in May. In addition, FBI Field Office & Parking Garage is a 113,000-square-foot development set for completion in September.

Other significant projects in the Tampa market are underway. Trammell Crow Company is developing the Port Ybor Industrial park, a $12.5 million, 315,000-square-foot office/ industrial park located in the Central Hillsborough submarket. North Point at Suncoast Crossing, a $50 million, 1.2 million-square-foot mixed-use project, also is planned, located in the Northern Outlying Tampa submarket. Finally, Terrabrook Development is constructing Connerton Planned Development, a $30 million, 500,000-square-foot mixed-use project located in Northeast Tampa.

Because most of the completions scheduled for 2005 are owner-occupied, the new developments will not have much effect on the market since this type of space is excluded from absorption and vacancy calculations. However, large employers that typically take owner-occupied space often create support companies in the market and often are tenants in competitive space buildings.

Currently, development is taking place throughout the Tampa metro area. Nine new projects are on line in the North and Mid Pinellas County submarkets, six are underway in Northwest Tampa, six are being developed in the Northeast Tampa/Central Hillsborough submarkets, and five are underway in the Westshore/Tampa central business district submarkets.

The Tampa office market is seeing several active developers. Trammell Crow Company is developing the Port Ybor project; Crescent Resources is constructing the Corporate Center at International projects; Carter is working on the University of South Florida Research Park of Tampa Bay; and Grady Pridgen Inc. is in charge of development at Metropointe Commercial Park Westbay, Corporate Center and Gateway Business Park.            

Tampa’s low costs and inexpensive land have encouraged many businesses either to build their own offices or buy existing properties in the area, making the metro region one of the more prominent single-tenant markets in the country. Investors would be wise to consider the stable returns provided by sale/lease-back opportunities in the single-tenant market, especially those leased to credit tenants. Overall, signs within the market point to significant improvement throughout the Tampa MSA.

— Steven Ekovich, first vice president and regional manager, Marcus & Millichap’s Tampa and Orlando offices

©2005 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.