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The crystal ball view of Tampa’s office market in 2008 appears cautiously optimistic given the current slowing economy. On the demand side, office employment in the Tampa metro area is projected to grow at slightly over 1% in 2008, which should keep vacancies in check until stronger conditions prevail starting in 2009.

On the supply side, the current pipeline shows a potential 1.5 million sf of new office deliveries in Tampa in 2008. More likely, about 65% of this projection will complete this year, adding 974,000 sf to Tampa’s office inventory. The pace of Tampa’s office development has started to accelerate and 2008 deliveries are estimated to be a 56% increase over the prior year. Tampa’s office vacancy will have upward pressure as this new product is phased in.

With regard to local office investment activity in 2007, Tampa’s Central Business District was the match that started the fire. During the course of the year, four noteworthy office properties totaling 1.6 million sf changed hands with a total market value of $347 million ($217 per sf). These transactions represented a 61% slice of Tampa’s total office investment sales for the year.

Tampa’s Downtown office market made some positive steps in 2007. Despite a steady merry-go-round of tenant rotations within the market, net absorption for the year, albeit small, remained positive. The direct vacancy rate ended the year at 16.3% and sublease space, contrary to many other submarkets, declined to a minimal level by the end of the year. Market rents for CBD office space moved steadily higher each quarter of the year. The average asking rate for class A space advanced 5.8% in 2007, ending the year at $22.36 per sf. Class B space had similar gains, with the average rent moving 5.9% to end the year at $20.16 per sf.

Downtown Tampa reached a tipping point in 2007 with the completion of 1,500 residential units to initiate a viable live/work/play environment in and around the CBD. New office development for the district is now on the table, with Trammell Crow Co.’s planned Prime Meridian Center project in the Channelside area, a 20-story, 450,000-sf building to open by 2010.

It’s difficult not to notice the construction cranes lining Spruce Street/Boy Scout Boulevard in the Westshore submarket. At the west end, the $150-million mixed-use Avion Park development will open three hotels this year. Two proposed office towers at Avion Park, including a 10-story, 300,000-sf building to be developed by Highwoods Properties, are in the marketing phase.

At the front door of International Plaza, two office buildings under construction are preparing to open their doors in 2008. Crescent Resources’ eight-story, 247,000-sf Corporate Center Four building will be the first LEED-certified high-rise office building completed in Westshore when it delivers in November. Across the way, the mixed-use TriPointe Plaza project, which features a four-story, 50,000-sf office building, is well under way and scheduled for August completion.

New office construction in this corridor is currently commanding the highest asking rents in Tampa, averaging from $32 to $34 per sf.

The Interstate 75 corridor captured the bulk of net absorption and new construction in Tampa’s office market for 2007. The East Tampa submarket absorbed 194,373 sf of space over the year and the direct vacancy rate ended at 14.7%, up 130 basis points over the same time last year. New construction added 338,935 sf to the I-75 corridor during 2007 and 69% of this space was committed on delivery. Sublease space has been more problematic as it swelled to 2.8% of the corridor’s inventory by the final quarter.

The views expressed here are those of the author and not of Real Estate Media or its publications.

Randy Smith is research director for GVA Advantis in Tampa. He can be reached at [email protected]

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