Six Questions for Lee Arnold

TAMPA, FL—Office markets around the country are still recovering, yet Tampa is getting its first new office project in more than 20 years in the midst of the fray. Trammell Crow Co. is building a 400,000-square-foot office tower called SouthGate in Downtown Tampa.

Why is now the right time for Trammell Crow to take the office development plunge? GlobeSt.com caught up with SouthGate’s leasing firm, Lee Arnold, chairman and CEO of Colliers International Tampa Bay, Central & Southwest Florida, to ask him about the state of Tampa’s office market and why now is the right time for a new project.

GlobeSt.com: How is the Tampa Bay office market doing in terms of vacancy? Are there advantages or disadvantages for the Tampa Bay market versus other office markets around Florida and the Southeast?   

Arnold: Overall, office vacancy rates are slowly stabilizing across all the submarkets in the Tampa Bay area. We ended last year with significant positive absorption for the first time since the recession began. Comparing the Tampa Bay market to other markets around Florida, Tampa Bay is the second strongest, behind Miami.

As for the Tampa Bay market’s advantages, the area offers a wide diversity of industries and businesses, with excellent transportation in and out of our cities, and a tremendously appealing quality of life and affordable housing. In particular, the University of South Florida is a significant generator of talent and jobs.   

GlobeSt.com: Why do you think the Tampa Bay market is ready for new construction class A office space?

Arnold: We all know it comes down to timing. Although we've been in a down market since 2006, recent positive absorption means that quality class A office space in the downtown and Westshore areas of Tampa is harder to find. We have not seen a new high-rise office building in downtown Tampa in over 20 years, let alone a state-of-the-art LEED Gold-certified development.     

Meanwhile, area unemployment dropped to 8.5% in March, down from 11% a year ago. Historically, lower unemployment rates mirror lower vacancies in office space.   

GlobeSt.com: What are the kinds of things that would lead an office tenant to choose new over existing space?

Arnold: We are seeing pent-up demand for new, efficient space in the Tampa Bay market. We have received interest from a number of companies that want modern, state-of-the-art floor plans and amenities.

Southgate will be the first new office tower of its kind in Tampa in over 20 years, and the first LEED Gold-certified new-construction building in the central business district. LEED certification matters, not only in terms of the environment, but also in saving a building owner—and in turn, the tenants—significantly in energy costs over time.

Also, larger floor plates will attract full-floor tenants, allowing all employees to be housed on a single floor rather than split among multiple floors. With the move towards a more interconnected workplace, decision-makers are realizing that this approach can help attract and retain employees.  Also, a signature class A building offers an opportunity to companies who want to penetrate the Tampa Bay market and make an impression.

GlobeSt.com: How competitive must you be on lease rates to get tenants? Can you charge a premium for new space?

Arnold: You always have to be competitive, and as we factor in the efficiencies of larger floor plates and the building’s energy-efficient features, it’s important to look at costs over the life of a lease. The key here is total cost of occupancy over the lease term.  

An office space user’s value proposition is changing dramatically with the application of new technology and space utilization. We see great opportunity for new office buildings to create user experiences that are very difficult to create in existing buildings. For example, having offices set back from window lines, creating smaller office spaces that create better team communication, and providing access to truly integrated information technology tools.

We have several significant advantages. SouthGate qualifies for the city's Enterprise Zone designation, which means new tenants to the market can qualify for incentive opportunities. Also, we have the ability to potentially park a tenant's entire staff onsite, something most downtown Tampa buildings can’t offer.

GlobeSt.com: What kinds of features will there be in the new Southgate building that you think might be attractive to tenants?  

Arnold: There are quite a few. We will have a wide range of “green” features, such as energy-efficient mechanical equipment and lighting, water conserving fixtures, and a high-efficiency curtain system designed to minimize solar exposure and reduce heat.  

The building will have spectacular, unobstructed panoramic water and city skyline views, along with ease of access from four directions. The project is tied to a planned 350-suite four-star hotel, convenient for tenants who want to bring in out-of-town visitors. And we will offer a best-in-market 3 parking spaces for every 1,000 rentable square feet of space, in an attached nine-story parking garage.  

Also, in addition to easy access to Tampa Bay Times Forum and Channelside amenities, the building will be adjacent to CAMLS, the University of South Florida’s new medical training facility, which is already generating interest from around the world. We anticipate many medical simulation vendors and users of the facility to cluster around the area.

GlobeSt.com: What is the next step for the Southgate project to move forward? Do you have to get a certain percentage of the space pre-leased for the developer to get financing?  

Arnold: With rezoning complete, Trammell Crow, the developer, is proceeding with formal site plan approval, along with final design. They’re targeting 50% pre-leasing to move forward with construction, but it’s really a function of market momentum to signal a launch.