Pinellas County office market sees modest improvement

ST. PETERSBURG - As the national economy continued to slowly recuperate during the third quarter of 2011, the Tampa Bay Metropolitan Statistical Area’s economy also showed positive signals, providing both established companies and those companies new to the area the renewed confidence to begin to take on new employees and invest in additional space.

Confirmation of this can be observed in the market’s job growth, which posted a positive increase of 13,700 new jobs from June 2011 through August 2011. Professional and business services and financial services, which are the primary industry sectors most directly linked with the vigor of the office market, experienced a significant portion of the job growth over this time period, gaining 1,900 and 300 new positions, respectively.

As job gains grew throughout the region, Pinellas County’s office market fundamentals modestly improved during the third quarter as overall vacancy declined and once again quarterly overall absorption was positive.

Improving market fundamentals 

Even though the overall vacancy rate closed the third quarter at a somewhat high 23.0%, vacancy decreased three-tenths of a percentage point from mid-year 2011 and is down seven-tenths of a percentage point from the same time last year. While a decrease in vacant space was experienced over the quarter, quarterly overall absorption in the market was positive for the third straight quarter, recording a meager 12,149sf of positive absorption over the past three months.

The third quarter’s positive absorption has pushed the Pinellas County office market’s year-to-date absorption total north of positive 218,000sf, which when compared to the absorption total at the close of the third quarter of 2010, absorption has improved 197.5% during the first nine months of 2011.

Demand slowly increasing 

While there continued to be a noticeable increase in the volume of tenants shopping for space within the market, leasing activity during the quarter dropped off considerably. This is readily demonstrated in the third quarter’s leasing activity total of just 126,916sf, which was a decrease of 93.3% from last quarter, though it was more than a 8.1% increase from the leasing activity posted in the third quarter of 2010.

Although the average size of the quarter’s leases was just 4,230sf, a few notable deals were signed during the quarter. The largest leases of the quarter were completed by Metropolitan Charities, who leased 16,503sf in Cornerstone Center South, and Fairwarning Software, which signed a 13,436sf lease at Feather Sound Corporate Center I.

Asking rental rates within the market have begun to level out and have not fluctuated much since mid-year. Marketwide, the third quarter’s full service asking rent averaged $18.69 psf, which was only a minimal decrease from the second quarter of 2011 - though when compared to the average rent posted this time last year, average rents were down $0.38 psf. The favorable rental rates that were available was one of the primary reasons for the recent increase in tenants looking for space within the market.

Outlook 

With the Tampa Bay area continuing to post positive job growth, particularly in the office-using industry sectors, Cushman and Wakefield anticipates demand for both new and expansion space in the Pinellas office market should gradually increase through the remainder of 2011 and into 2012.

Although it’s too early to tell how long it will take for this demand to intensify enough to significantly to reduce the high vacancy rate within the market, it is clear that market fundamentals will continue to favor tenants in lease negotiations over the coming months.