Yet Tampa's industrial fundamentals remain well positioned to withstand a limited pullback. The direct vacancy rate closed the first quarter at a healthy 4.2% and the average asking rental rate was $7.13 per sf, up about 3% over the same time last year.
Weakened consumer demand and a slowdown in business activity have resulted in a further downturn in demand for industrial space. Corporations which ceased operations or downsized in Tampa have created additional space supplies that are starting to create a backlog in the local market.
Fortunately, there have been a few notable exceptions where tenant expansions counteracted this trend. American Tire Distributors finalized a ten-year lease for 147,197 sf at Madison Business Center on the city's east side. The new facility being developed by IDI will triple American Tire's current warehouse space when it relocates this summer.
The new generation of industrial product being developed in the Tampa market includes such features as increased clear heights, wider column spacing and more efficient fire suppression systems that are attractive to growth companies looking to minimize operating costs.
Vacancy in Tampa's distribution segment of the market remained at historic lows in the first quarter despite a slight upward trend over the past year. Direct vacancy registered 3.6% this period, up 40 basis points over the first quarter of 2007.
Rental rate growth for distribution space has softened, weighed down by a significant amount of older, less-functional space returned to the market. Several blocks ranging from 80,000 to 226,000 sf added to inventory with net asking rents ranging from $4.25 to $4.50 per sf, up about 2% over last year's rate.
The pace of construction of flex product in Tampa picked up, with 169,464 sf of new starts in the first quarter. University Corporate Park is adding two buildings that will be completed this fall and First Industrial Realty Trust will complete its buildout of First Park Brandon II this July with two new flex buildings.
The direct vacancy rate for flex space ended the quarter at 8%, much tighter than the 11.4% rate registered this time last year. Rental rate growth leveled off in the first quarter at $10.54 per sf, up a strong 12% from a year ago.
At the end of the first quarter, industrial projects under construction in Tampa totaled 1.3 million sf with almost 40% of the available space already committed. Developers are pulling back from pure speculative starts, instead offering building pads or turnkey build-to-suit opportunities to kick off new projects. So far, the attraction of state-of-the-art, first-generation space is piquing sufficient interest from industrial users to keep new supplies in check.
Industrial sales activity started the year relatively strong, posting $65.9 million in transaction volume for the first three months. This sales mark is slightly ahead of last year's pace at this time, but market conditions in 2008 could temper future activity as investors become more selective and try to discern the impact of reduced tenant activity on individual properties.
More restrictive financing requirements will continue to keep some buyers out of the building process this year, but prices remain stable and there does not seem to be any sense of vultures circling the Tampa market. Most sellers are unwilling to compromise too much on pricing now and are likely to pull properties off the market if their price expectations are not achieved.
The views expressed here are those of the author and not of Real Estate Media or its publications.
Randy Smith is research director of GVA Advantis in Tampa. He can be reached at rsmith@gvaadvantis.com.
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