Bay Area Office Vacancy Spikes

TAMPA, FL-Corporate consolidation and downsizing, combined with continued fallout within the financial services industry, has led to an overall increase in office vacancy in the Tampa Bay market through this year's third quarter, according to various local brokerages. A consensus of research reports puts vacancy at approximately 15%, gaining nearly a full percentage point from midyear and nearly three points from the same period in 2007.

The cold wind of economic turmoil is hitting practically every submarket surrounding Tampa Bay, a market normally known for its warm climate and booming economy. Several financial firms have put large amounts of sublease space on the market, while other tenants that choose to renew in their current offices are either scaling down space or negotiating rents in their favor, according to researchers.

"The Tampa Bay office market has hit the brakes," observes Larry Lietzman, with Grubb & Ellis Commercial Florida in Tampa. He says local office tenants are hunting for bargains lately, which may make things more difficult for owners of newer buildings seeking higher rental rates.

For the most part, asking office rents within the Tampa Bay market have stabilized through the third quarter, at $21.61 per sf overall, according to CB Richard Ellis. Class A space in the Westshore submarket, the Bay area's largest, continues to command the area's highest rent at just over $29 per sf, although vacancy has returned to double-digit territory, reaching nearly 12%.

Vacancy is expected to increase even more within Westshore over the next six months, as 547,000 sf of new class A space opens in three buildings, according to Karen Temmen, research director for Clearwater-based Colliers Arnold. She counts 18 buildings totaling nearly 1.3 million sf currently under construction throughout the area.

"Brokers are finding fewer prospective tenants and buyers in the market that are ready and able to make decisions," Temmen says. She adds that many tenants up for renewal are staying put to avoid moving costs, while also negotiating shorter terms on those renewals.

Sales transactions have practically ground to a halt in the market as well, with only two notable deals reported during the third quarter. TA Associates purchased the four-building Centerpointe complex in Westshore from USAA Realty for $47.3 million, or $135 per sf, while CNL Commercial Real Estate bought the Wachovia Plaza office tower in Downtown St. Petersburg from Parkway Properties for $26.3 million, or $142 per sf.