‘Tire-kicking’ up in Tampa office market

While Tampa Bay’s economy is still contracting, it appears to have weathered the worst of the recession. As consumer and business confidence improved, several economic indicators suggest the intensity of the current economic slowdown has begun to lose pace within the market. The rate of job loss has subdued markedly, the increase in unemployment has decelerated and the residential housing market has experienced a slight improvement.

Though some indicators have demonstrated improvement, the Tampa Bay metropolitan area has still lost 56,000 jobs over the last 12 months. With job growth tightly tied to the office real estate market, job losses in the professional and business services sector (-18,700), information technologies (-2,900) and financial services (-1,500) over the past year, has resulted in office market fundamentals weakening further in the third quarter of 2009.

Overview

The Tampa office market continues to struggle with increased vacancy and subdued tenant demand. Both the CBD and non-CBD vacancy rates have continued to climb, with the marketwide overall vacancy rate reaching 19.3% at the close of the third quarter of 2009. This is a seven-tenths of a percentage point increase over mid-year 2009 and a substantial 4.4% higher than the vacancy recorded this same time last year.

Sublease availability continues be a significant factor throughout the market, with a total of 521,229sf of vacant sublease space and another 278,905sf of occupied sublease space (shadow space) available in the market. This bargain priced sublet space, coupled with the increasing amount of vacant space available on a direct basis, resulted in further downward pressure on asking rental rates, which fell $0.24 psf, to a marketwide average of $22.86 psf. Additionally, lease concessions have continued to be prevalent throughout the market, decreasing a tenant’s effective rent 10%-20% over the term of their lease.

Tenant demand continued to remain well below historic levels during the past three months, though a slight increase in tenants “kicking the tires” throughout the market began to be experienced during the quarter. Despite this increase in tenant inquiries, leasing activity during the third quarter totaled just 406,112sf, down 38.7% from the strong activity recorded in the second quarter of 2009 and 9.6% from the activity recorded this same time last year. Overall absorption, another testimony to tenant demand, also fell further into the red during the third quarter with a quarterly total of negative 215,490sf, bringing the year-to-date absorption total to negative 915,654sf.

Forecast

Although Tampa’s office market continued to weaken during the third quarter of the year, it appears as though more and more prospective tenants and existing tenants whose leases are expiring within the next 12 to 18 months have become increasingly active in the market as they try to take advantage of the favorable lease terms currently available.

With the surplus of vacant space and competition between landlords to fill occupancies in their properties, Cushman & Wakefield expects leasing activity to steadily increase and absorption levels to stabilize over the next few quarters.