Tampa office market sees more tenant demand

TAMPA - A growing number of positive indicators, including an increase in job opportunities and a decline in the unemployment rate, provide continued evidence that the Tampa Bay metropolitan statistical area's economy is slowly recovering.

Additionally, existing single-family home prices appear to be stabilizing in the Tampa Bay MSA. The median sales price of homes in the Tampa Bay market hit $129,300 in May 2010, off just 1% when compared to the median home price recorded during the same time last year.

The recent improvement in the area's economic health were also reflected in the Tampa office market during the second quarter of 2010 as the vacancy rate declined, overall absorption was positive during the quarter and sales activity increased.

Overview

Overall vacancy in the second quarter of 2010 registered 19%, a decrease of six-tenths of a percentage point from the first quarter of the year, though when compared to mid-year 2009, overall vacancy is up four-tenths of a percentage point.

A recent increase in tenant demand from companies who already occupy space within the market and an uptick in demand from companies new to the market is the primary reason for the recent decline in overall vacancy. This increase in tenant demand caused overall absorption for the second quarter to post positive 161,898sf, though year-to-date, overall absorption figures have remained in the red with a total of negative 65,763sf at mid-year.

Although overall absorption stayed negative through the first half of 2010, when compared to the same time period in 2009, absorption figures have improved 89.2% from the negative 609,117sf of absorption during the first six months of 2009.

Another reason for this recent improvement in office fundamentals is the favorable rental rates that can currently be obtained within the market. Marketwide, the second quarter's full service asking rent averaged $22.14 psf, which is a $0.24 psf decrease from the first quarter of 2010 and a significant $0.94 psf decrease from the average rent recorded at mid-year 2009. In fact, the second quarter 2010's average rent of $22.14 psf is the lowest marketwide asking rent posted in the market since the second quarter of 2007. Additionally, negotiated lease rents rates are currently being discounted between 15% and 30% depending on the area a tenant is looking to lease space.

Office sales in the first half of 2010 picked up considerably from the sales activity recorded over the same time period in 2009. The area experienced slightly more than 1.0 msf of product change hands during the past six months, an increase of 86.8% from sales activity during the first half of 2009.

A trend which just developed over the second quarter of 2010 is tenants purchasing their office space instead of leasing. This trend is a result of the numerous landlords whose properties are currently distressed and a tenant's ability to purchase a building at a substantially discounted price. A prime example of this trend is Homeowner's Choice Insurance's purchase of the 115,021sf Cypress Commons building for approximately $80 psf.

Forecast

Although the results of one quarter do not represent a developing trend, Cushman & Wakefield believes this turnaround will be sustainable as 2010 progresses. The next news we look forward to seeing is continued positive job growth in the market over the upcoming months.