(Carl Cronan is editor of Real Estate Florida and has covered commercial real estate in the Tampa Bay market for the past decade.)
TAMPA, FL-The rule of thumb for office leasing in the Tampa Bay market has primarily been for tenants to lock in the most favorable rents that they can, for as long as they can. But while users still have plenty of options close to the $20-per-square-foot mark, they want shorter terms now because of economic uncertainty.
“While some tenants are renewing in place for one to three years, those willing to sign for longer terms have made deals that would have been unheard of in the last few years,” says Karen Temmen, research director at Clearwater-based Colliers Arnold. Incentives include significantly reduced rents, moving allowances, extra tenant-improvement funds and buyouts of remaining leases.
Tampa Bay office landlords are concerned about keeping tenants in place, and rightly so since local unemployment broke the 10% mark in February and is expected to go higher. Area brokers say the recession is causing gridlock between property owners wanting to sustain building values and users uncertain about whether to maintain current space needs.
“This is an opportune time for tenants to review their existing leases, especially if an early renewal will result in lower expenses,” CB Richard Ellis states in its first-quarter MarketView report on the Tampa Bay office sector. CBRE notes that the overall vacancy rate is skirting 20%, with several submarkets such as East Tampa and Mid-Pinellas County already exceeding that mark.
Despite soaring vacancy and more than 700,000 square feet of negative absorption last quarter, CBRE says local asking lease rates are holding steady at just above $22 per square foot, a long-term average for the market. Class A rents are above $24 per square foot and run as high as $30 in the dominant Westshore submarket.
Sales in the Tampa Bay market continue to be stunted by the credit markets and are down 85% from the 2006 peak, CBRE reports. The most significant deal in the first quarter was Westshore 500, a 10-story class A office building near Interstate 275 in Tampa, trading for $20.1 million or $155 per square foot.
Temmen says small businesses that sought to own their space rather than rent are no longer as aggressive about seeking buildings, mainly because capital is scarce and financing terms are more restrictive for small office acquisitions. In the meantime, she says, the current tenant market will likely continue into 2010 and sublease space continues to be an attractive option.
“Overall, the next few quarters will continue to be a transition period whereby sales activity will remain soft, while prices adjust downward, and lease rates deteriorate slightly,” Temmen says. “Most certainly, the fundamentals of the market will improve when employment opportunities in the area improve.”