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TAMPA, FL-Wallowing in vacancy levels of 17%, 20% and 24% in some submarkets, the Tampa Bay office market is expected to improve in 2004 as new jobs surface and new construction is kept in check, according to a third-quarter analysis by the local office of Marcus & Millichap Real Estate Brokers Services Inc.

“Office employment growth in the Tampa-St. Petersburg-Clearwater MSA will accelerate to 5.2% in 2004, doubling the rate recorded in 2003 and driving the market’s recovery,” predicts Steven M. Ekovich, M&M’s first vice president and regional manager.

Although new construction is increasing, “it is not concentrated in any one geographic area, so it will have little impact on any particular submarket, allowing rising investment values over the next year, as office market fundamentals continue to show improvement,” Ekovich says.

But potential investors looking at the vacancy numbers today may be somewhat disheartened. “Vacancy peaked in 2002 and will dip by an estimated 30 basis points to 15.4%” for all of 2003, the M&M executive predicts. “An additional 50 basis points-drop, to 14.9%, is forecast for 2004, as rising office employment stimulates absorption.”

Increasing concessions could allow the Northeast Tampa submarket to record a drop in vacancy of 300 basis points in 2004, “but it would still post a market-high vacancy rate of 24%,” Ekovich acknowledges.

The Westshore and Tampa CBD submarkets are both hampered by high class A vacancy at 17% and 20% respectively, “but will rebound smoothly due their centralized locations,” the broker says.

Average asking and effective rents, too, should improve in 2004. “After falling by an estimated 1.2% in 2003, to $15.33 per sf, effective rents will begin to rebound as owners, sensing a turnaround, raise asking rents and limit concessions,” Ekovich says.

Effective rents are expected to rise by 0.8% to $15.45 per sf by the end of 2004. Asking rents will also increase, from $18.03 per sf in 2003 to $18.23 per sf in 2004, a gain of 1.1%.

On the investment sales side, the number of transactions can only improve next year after a dismal 2003 performance, the M&M executive says. “Sellers are (still) holding out for higher prices than buyers are willing to pay,” he says.

But “as employment growth stimulates improved space demand, the bid-ask price differential is likely to be erased, stimulating investment activity,” Ekovich projects. Still, in the short term, “class A values may fall slightly due to weak fundamentals,” he says.

For example, the median prices for class A office product declined from $115 per sf in 2002 to $109 per sf through third-quarter 2003, down 6%. The median price per sf among class B and class C sales combined, however, was up by 16%, from $84 in 2002 to $97 through the third quarter.

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