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(Carl Cronan is editor of Real EstateFlorida.)

TAMPA, FL-The local vacancy rate for office space appears to be holding steady at 15.1% midway through this year, though available inventory has grown by at least 800,000 sf over the past 12 months, according to the latest market review by GVA Advantis. Job losses, particularly in the financial services sector, are bringing about tepid demand.

“Despite some erosion of Tampa’s office fundamentals in the first half of 2008, the market seems to be transitioning into a more stabilized mode, which will limit sharp swings in the future,” Randy Smith, local research director for GVA Advantis, stated in the report. He added that most local market players have come to grips with the reversal of fortune in office demand, which was on a favorable track until the latter half of last year.

Asking rents for class A office space in Tampa averaged $24.50 per sf at the end of the second quarter, up 1.5% over the year but well off the pace of yearly gains measuring 10.1% in 2006 and 5.5% in 2007, Smith’s statistics show. He observes that midyear market rents adjusted downward for the first time in both class A and B properties.

Slightly over a million sf of office projects are currently under construction in Tampa, mainly in the Westshore submarket and Interstate 75 corridor on the city’s east side, Smith says. Two-thirds of this speculative space is scheduled to open by the end of this year, likely causing a modest rise in vacancy, he says.

Leasing activity is strong in some segments of Tampa’s office market, with Corinthian Colleges signing a ten-year deal for nearly 115,000 sf at NetPark near I-75 in the second quarter, Smith reports. However, he observes that most local landlords are concentrating on renewing existing tenants to maintain occupancy and cash flow.

More than 4.5 million sf of new office is on the drawing board locally, according to an estimate by CB Richard Ellis, though many brokers aren’t convinced that all those plans will come to pass. For example, Philadelphia-based Rubenstein Partners has postponed an ambitious 580,000-sf waterfront office project in Westshore, called West View Corporate Center, because of the economic slowdown and faltering demand for new space.

Westshore, the city’s largest office submarket with a current inventory of 11 million sf, also maintains the lowest local vacancy rate at just above 10% through the second quarter, according to both GVA Advantis and CBRE estimates. Landlords are attempting to hold the line on asking rents at just above $25 per sf, with class A space commanding nearly $30 per sf, though Smith notes that sublease space in Westshore has increased by 53% through the first half of this year.

Downtown Tampa’s office market, with 6.5 million sf of inventory, seems to be holding its own even with tenant activity cooling, Smith says, adding that “a healthy tenant base has limited the CBD’s exposure to excessive sublease space.” Vacancy measured 17.9% at midyear, 16.1% for class A, with asking rents for class A space actually rising a couple of dollars over the past year to an average of $23.55 per sf, he says.

Investment activity in Tampa’s office sector has slowed down significantly, with only $73.7 million in sales posted through the first half of 2008, less than a quarter of the $316.8 million posted through the first six months of 2007, Smith says. The only notable transaction during the second quarter was Orlando-based Eola Capital’s acquisition of the Buschwood III building in northwest Tampa for $19.3 million, or $112 per sf.

However, Smith notes that transactions could pick up in the current quarter, with USAA Real Estate having sold two Westshore buildings in July for $47.3 million. Four significant buildings in Westshore and one office tower in Downtown Tampa are now in various stages of the marketing and sale process, he says.

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