CITY HIGHLIGHT, MARCH 2005

TAMPA BAY AREA IS GROWING TO FLOURISH

The Tampa Bay, Florida area has not been hit nearly so hard by the recent economic recession the rest of the nation has been facing, due in part to its diversity of business. With a population of 3.7 million people throughout the seven-county region, the Tampa Bay area added 25,600 jobs during the past year while retaining an unemployment rate of 3.5 percent. In 2003, Tampa Bay was awarded “2003 Mega-Market of the Year,” a distinction given by Southern Business & Development magazine to markets with populations greater than 2 million. Tampa Bay received the honor over such regions as Baltimore/Washington, D.C., Dallas/Fort Worth, St. Louis, Atlanta and Miami. It’s hard to resist the beautiful weather, tropical breezes and wealth of activities that abound in the area, and due to these and other factors, the commercial real estate market has been bustling with activity overall.

— Melanie Garlock, marketing and research manager, Grubb & Ellis|Commercial Florida

Office

Highwoods Properties expects to break ground this year on Highwoods Bay Center, a 200,000-square-foot building in the Westshore submarket of Tampa.

Slightly offsetting the layoffs, companies with headquarters or large regional offices, such as Outback Steakhouse, Blue Cross/Blue Shield and Fowler White Boggs Banker have been growing and expanding their office space needs. The current weighted average asking rental rates are $20.50 per square foot for Class A space and $17.06 for Class B space, but rental rates are expected to creep continually upwards. As larger chunks of space are absorbed, fewer concessions will be offered while the Tampa Bay office market continues in recovery mode throughout 2005.

The Westshore submarket of Tampa, the largest suburban office submarket in Florida, and the Gateway submarket in Pinellas County lead the region in new office development. Highwoods Properties currently has 112,000 square feet under construction for the FBI in Westshore and expects to break ground in 2005 on a multi-tenant, 200,000-square-foot, Class A building also in Westshore situated on Tampa Bay. Also during 2005, Crescent Resources is anticipating the groundbreaking of its fourth building in Westshore, the 280,000-square-foot Corporate Center IV at International Plaza. The Gateway submarket witnessed a few large owner-occupied developments during 2004: Raymond James, 300,000 square feet; Bright House Networks, 166,000 square feet; and St. Anthony’s Outpatient Center, 145,000 square feet, of which 33,333 square feet is available for lease.

Other notable office developments set to break ground or scheduled for completion this year are: 200,000 square feet of office space at the Progress Energy mixed-use development in St. Petersburg’s central business district; the 2.6 million-square-foot, 122-acre mixed-use Gateway Business Park West in Gateway; 125,000-square-foot MacDill Federal Credit Union; and two USF Research Park buildings located in the Interstate 75 corridor of Tampa, each comprising 120,000 square feet.

— Richard Andretta, vice president – office group, and Tom Kennedy, senior associate – office group, Grubb & Ellis|Commercial Florida

Industrial

Tampa’s industrial market finished strongly in 2004, surpassing a recovering national industrial market in most vital categories including vacancy, absorption and rent growth. A strong service sector, substantial ongoing residential development, nation-leading new job growth and a small hurricane-related construction boom have contributed to this windfall.

Purchase opportunities in all sizes of both “user” and investment buildings continue to be in exceedingly short supply. Significant increases in construction and materials costs should continue this trend as building replacement prices outpace existing sale prices. This increase in construction costs, primarily concrete and steel, will ultimately lead to rent increases as proposed speculative and build-to-suit projects meet with new tiers in pricing.

Continued positive absorption will also fuel this rent growth. Barring a national tragedy, Tampa can expect strong positive absorption well into 2005 as the fourth quarter of 2004 marked the ninth quarter out of the last 10 that has seen positive absorption.

Despite more than 1 million square feet absorbed in 2004 and after a similarly strong 2003, speculative construction in Tampa remained conservative. Trammell Crow Company led the way on spec buildings by constructing the first building of its Port Ybor development, comprised of 281,600 square feet. More modest projects of 94,105 square feet by Duke Realty Corporation, 78,520 square feet by East Group Properties, 59,080 square feet by Liberty Property Trust and 28,250 square feet by First Industrial followed Trammell Crow’s lead. By contrast, the relatively small submarket of Sarasota/Bradenton, comprised of approximately 21.5 million square feet, led all other submarkets by posting more than 525,000 square feet of speculative development.

Although this past year finished strong, anticipate 2005’s performance to eclipse that of 2004. Nearly all market indicators point to a banner year, including:

• 19 consecutive months of expanded manufacturing activity

• Ten straight months of increased construction hiring

• 2.2 million jobs created in 2004 with conservative estimates exceeding that for 2005

• National industrial vacancy nearing single digits for the first time in more than 3 years

• Declining local unemployment and employment growth exceeding the national average

There was cautious optimism going into 2004 but expectations for 2005 are increasingly bullish based on these positive indicators.

— Jan Boltres, vice president/principal – industrial group, Grubb & Ellis|Commercial Florida

Multifamily

Tampa is booming economically, as employment growth is expected almost to double from last year. More than 44,000 positions are expected to be added in 2005, up from approximately 28,000 new jobs in 2004. The financial services sector, in particular, will lead employment growth, and, catering to the retiree population, the healthcare and professional services sectors are also areas of increasing job expansion. The favorable tax structure and low cost of living in Tampa blend perfectly with the moderate climate, providing the opportunity for both young professionals and retirees to experience a high-quality lifestyle.

As a result, tenant demand for apartments is strong and investors are expressing a high degree of investment interest in Tampa Bay area apartments.

Tampa has effectively established itself as a financial hub in Florida, as the financial services sector has been growing at an annual pace of 4.4 percent since 1994. Young professionals are looking increasingly to employment possibilities in the Tampa Bay area, thereby diversifying the renter demographic in the region. The salary range for these new jobs is significantly higher than it was in the past.

For young professionals and college graduates, the charm of older housing and the convenience of a central location are attractive qualities. Thus, the older areas of downtown St. Petersburg and south Tampa are now thriving. Investors have responded by renovating smaller, older properties and providing amenities such as hardwood floors and crown molding.

However, the construction forecast reflects a significant decrease in apartment inventory. Developers are expected to deliver just 2,500 units, down from approximately 3,400 units delivered in 2004. Vacancies are forecast to dip 60 basis points to 7.7 percent in 2005, and throughout the region, asking rents will rise 1.8 percent to $750 per month. In Class A-dominated submarkets, where concessions had been deep and widespread between 2001 and late 2003, owners are now able to either dramatically reduce or entirely eliminate concessions, although concessions, albeit on a reduced basis, are still available in certain markets.

Most conversions are still going on by the popular waterfront, but due to low interest rates and strong buyer demand, converters are now purchasing properties in non-waterfront and non-infill locations. Such opportunities exist in areas of Pinellas County and in central portions of Hillsborough County. In 2004, the median sales price for Tampa apartment properties was $47,375 per unit, an increase of 5.5 percent from 2003.

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

Retail

The Tampa metropolitan statistical area (MSA) continues to grow at an astounding rate. Total population as of third quarter 2004 had grown to more than 2.575 million residents. Twenty-five percent of the population falls in the 25 to 44 age range, which is so highly sought by retailers. The population has increased by just under 200,000 residents in 4 years, and the MSA is projected to add more than 250,000 more residents in the next 4 years, projecting the population to 2.86 million residents after that time. New residential developments are being constructed mainly to the north, south and east, as Pinellas County to the west is close to being built out with little vacant land available. 

Redevelopments are the popular choice for developers in Pinellas County, and these projects have proven successful. The Sembler Company and New Plan Excel redeveloped Clearwater Mall into a retail Mecca, and Boulder Ventures is redeveloping Parkside Mall into The Shoppes of Park Place, a +/- 600,000-square-foot power center anchored by Target and American Signature Home. To the north, Pasco County has seen exponential growth in the New Tampa/Land O’ Lakes areas with 62,000 lots currently approved and 42,000 lots under review. Ninety-five percent of the new homebuyers in this area are family commuters that work in Tampa and reside in bedroom communities in the outer limits of the city. In the Wesley Chapel area, retail developers are following the residential growth by planning more than 6 million square feet of retail, which is close to their current inventory of retail space for the entire county. Land owners and developers continue to hold land in this area and prefer ground leases from $120,000 to $200,000 a year for three-fourths to a little more than an acre pad sites. Similar growth is taking place throughout the Tampa MSA on available land within commuting time to the areas of major employment. This type of growth has put the Bay area on the radar screens of many developers and retailers nationally. New retailers to the Bay area consist of Wild Oats Natural Marketplace, SweetBay Supermarket, CostPlus World Market, Kohl’s, Ashley Furniture, Drexel Heritage and Ulta Cosmetics. Weighted average rental rates in Hillsborough County reached $13.74 per square foot, while Pinellas County rates increased to a healthy $14.51 per square foot. Occupancy continues to remain high as Hillsborough recorded a 94.6 percent occupancy rate and Pinellas recorded 93.6 percent occupancy. The retail action in the Tampa MSA continues to be a hot spot on the local and national radar.

— Jeremy Kral, director of market analytics & G.I.S., Colliers Arnold

©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.