Tampa Suburbs Outperforming Downtown in Office Leasing

Smaller garden-style office properties are being built in suburban areas such as New Port Richey and Brandon, where "demand for small blocks of space has remained strong," says Steven M. Ekovich, first vice president and regional manager of M&M's Tampa and Orlando offices.

Additionally, Tampa suburbs are outperforming Downtown in office leasing volume. For example, the Westshore market, near the Tampa International Airport, is being transformed into a new Downtown for Tampa, largely because of its location, Ekovich says.

Mark Stratman, senior vice president and managing principal of corporate services in Central Florida for Dallas-based Staubach Co. agrees. "Westshore is consistently seeing more leasing activity than the CBD," Stratman tells GlobeSt.com. "Many tenants, including banks and attorneys, have decided to locate themselves in the Westshore market" where average asking rental rates are the strongest in the Tampa Bay area."

Still, says Marcus & Millichap's Ekovich, Downtown Tampa's leasing picture will start to brighten in this year's last quarter and then "gain momentum in 2005." Ekovich is confident "strong office-using employment growth will continue to benefit the market, but significant improvements in vacancy will not be registered until next year."

He predicts that "after peaking in 2003, vacancy is on pace to decline 30 basis points this year to 17%." Vacancies are still over 21% in the region's urban cores. "In many submarkets where vacancy is close to 15%, buildings that cater to smaller tenants are close to fully occupied, while larger spaces go unfilled," Ekovich notes.

Asking rents are on target to finish the year at $18.24 per sf, up just 0.2% from 2003. "Owners continue to utilize rental incentives to entice tenants into vacant space," the broker says. Concessions in the Tampa Bay area average 17.8% of asking rents, with offers of one month or two months free rent still commonplace throughout much of the metropolitan statistical area, he says.

On the investment side, interest and activity by private and institutional investors remains strong. "Per-sf prices have increased significantly this year," Ekovich says. Total dollar volume is up 35% compared to the same period last year and is just 20% off the total for the entire year.

Institutional investors closed seven class A transactions totaling over $222 million so far this year. "Private capital continues to play an important role in properties priced below $10 million, where more than 90% of sales are occurring."