Lease rates stable in Tampa office market

After the freefall of 4Q08, Tampa Bay’s user and investment office market started to gain traction in mid-2009. Tenants and investors now have a better picture of how revenues and expenses will look as a continued contraction of the office space market persists.

In the long term, however, Tampa Bay’s robust demographic trends create heady demand that is likely to lead us out of the recession ahead of the nation. Overall, Tampa’s high concentration of call centers and back-office operations make it well positioned for a recovery. A friendly tax environment, cheap office rents, expanding port, defense exposure, and trained labor force render it ideal for service investment.

In 4Q09, cap rates for office product were up approximately 120 basis points since December 2008 overall, according to Real Capital Analytics - U.S. Capital Trends. In addition, the bid-ask spread has widened to 35 basis points. Recently, we have seen significant transactions that will set the bar as we move forward and establish value in 2010.

Two notable sales transactions took place in 4Q09: Corporate Center IV, a Class A, 247,000sf office building sold for $25,000,000 to EOLA Capital from Crescent Resources LLC. In addition, 4200 W Cypress St., a Class A, 220,579sf office building sold for $22,250,000 to Highwoods Properties Inc. from TIAA. TI costs and underlying mortgage issues affected the sales price of each property.

The vacancy rate increased 120 basis points in 4Q09 from 3Q09, which is a significant increase quarter-over-quarter. Asking lease rates fell to $21.30 psf, a $0.38/psf decrease from 3Q09 as sublease space has become direct. Direct space absorbed this quarter was negative 499,157sf, while sublease space represented negative 35,153sf of absorption.

In the past 12 months, the overall Tampa Bay market experienced negative 1,453,069sf of absorption, a 43,802sf positive difference, in terms of the trailing 12 month absorption figure. However, the overall absorption of sublease space is negative 170,346sf, while direct space represents negative 1,282,723sf, or 88.3% of the total.

Lease rates

Tampa Bay’s vacancy rate moved 120 basis points higher in 4Q09 to 21.4% and negative 534,310sf of absorption in 4Q09. In addition, the average asking rental rate declined $0.38/psf to $21.30. With construction figures 92% off their 2Q07 peak, asking lease rates have remained stable despite the economic uncertainty in 2009.

Absorption

The Tampa Bay office market experienced negative 534,310sf of overall net absorption this quarter. Hillsborough County represented negative 412,709sf of this overall absorption figure, particularly seen in the Westshore and Northeast Tampa submarkets, which accounts for negative 182,834sf and negative 68,047sf respectively. Pinellas County experienced negative 121,601sf of absorption this quarter, with North Pinellas accounting for the largest absorption by submarket, negative 67,110sf.

In the past 12 months, the overall Tampa Bay market experienced negative 1,453,069sf of absorption, a 43,802sf positive difference, in terms of the trailing 12 month absorption figure. However, the overall absorption of sublease space is negative 170,346sf, while direct space represents negative 1,282,723sf, or 88.3% of the total.

Construction

There is currently one building under construction in the Northeast Tampa Bay market totaling 88,000sf, with more than 5.51 msf in the planning stage. A couple of larger overall market projects include the Mosaic Company headquarters in East Tampa at 109,000sf and Park Centre at Telecom Park in Northeast Tampa at 88,000sf.

Although 368,002sf was delivered in 2009, the construction timeline began prior to the economic malaise that took place at the end of 2008. Therefore, all new construction has been halted, with the exception of build-to-suit opportunities.