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(Carl Cronan is editor of Real EstateFlorida.)

TAMPA, FL-Highwoods Bay Center, the city’s first new waterfront office building in the last two decades, has reached 85% occupancy after opening a year ago. However, a twin to the seven-story structure could be a few years away because of a tougher market for tenants.

Highwoods Properties Inc. opened the $41-million building after years of delays, with the Raleigh, NC-based REIT deciding to proceed as a speculative project rather than await substantial prelease commitments. Tenants such as Ameriprise Financial Inc. and HDR Architecture Inc. moved in soon after the certificate of occupancy was issued.

Microsoft Corp. became the newest tenant of the 209,000-sf class A building along Tampa Bay’s shoreline, signing a lease earlier this month for 25,000 sf of top-floor space. The computer software giant, which has 150 employees in a local sales and marketing office, will relocate from smaller space in the Bayport Plaza building on Rocky Point, near Tampa International Airport.

“We’re very pleased with the leasing activity and the rent roll here,” Dan Woodward, Highwoods’ vice president in Tampa, tells GlobeSt.com. “We still have approximately 30,000 sf in the building, mostly with water views.”

Highwoods Bay Center has some perceived competition in Tampa’s densely occupied Westshore submarket, which has roughly 12 million sf of inventory and midyear vacancy around 10%, based on local brokerage estimates. Several new office projects are under way in the area, adding at least 500,000 sf in the coming year.

As such, Woodward says Highwoods is prudent about proceeding with a companion building, which already has local site plan approval. It’s a matter of determining whether preleasing activity is sufficient to warrant starting construction, along with guessing whether office demand will be better by the time the second building opens.

“We’re carefully monitoring those other projects and the market conditions,” Woodward says. “We’ve got some reasonably good interest and good prospects for Highwoods Bay Center II.”

Woodward notes that Highwoods aims to keep pace with asking rents for new office space in Westshore, currently above $30 per sf and the most expensive in the Tampa Bay market. Westshore’s overall office rents average $24.45 per sf through the second quarter, with class A rent declining a full percentage point to $28.47 per sf, according to Karen Temmen, research director with Clearwater-based Colliers Arnold.

Highwoods is the largest office landlord in the Tampa Bay market, totaling 2.8 million sf with 95% occupancy throughout its local portfolio, Woodward says. He adds that the REIT hasn’t had any significant losses related to the fallout of Florida’s housing market, particularly with financial services tenants.

“Our portfolio is pretty solid,” he says. “We are watching all of our tenants and industries that have had pressure.”

In a related note, Robert W. Baird & Co. has initiated coverage of Highwoods with a neutral/average risk rating and $36 target price. The Milwaukee, WI-based brokerage states that Highwoods “has done a great job in their well-defined strategic plan to reposition the portfolio, strengthen its balance sheet and improve operating efficiency.”

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