Tenant demand soars in Tampa industrial market
TAMPA - Along with the national economy, the Tampa Bay Metropolitan Statistical Area’s (MSA) economy continued to strengthen over the third quarter of 2011. Although there remains many uncertainties as to the swiftness and intensity of the economic recovery in the foreseeable future, confidence continued to grow within many companies as they began to hire new employees and invest in additional space.
Proof of this can be seen in the market’s job growth, which posted a positive increase of 13,700 new jobs from June 2011 through August 2011, though unfortunately, the majority of this job growth occurred in office using employment sectors.
Within the industry sectors most directly associated with the well-being of the industrial market, both the construction and manufacturing sectors posted job growth over this time period, adding 1,000 and 700 new positions, respectively. Despite these diminutive employment growth figures, during the third quarter of 2011, Tampa’s industrial market fundamentals improved substantially.
Off-the-charts tenant demand
The third quarter of 2011 for the Tampa industrial market has proven to be a continuation of the slowly building momentum that began in the late stages of 2010. The market has strung together four consecutive quarters of recovering fundamentals, with overall vacancy continuing to decrease and absorption levels remaining positive.
The most significant improvement was experienced in overall vacancy, which decreased 1.5 percentage points from mid-year to 7.3%, and is the lowest overall vacancy rate the industrial market has recorded since the third quarter of 2008.
Of the many factors that contributed to the third quarter’s considerable decrease in overall vacancy, the most significant was the incredible increase in tenant demand over past quarter. This intensified demand resulted in a spike in new and expansion leasing activity during the quarter, which totaled over 1.2 msf and was the highest quarterly leasing total recorded in the market since the third quarter of 2006.
In comparison, the leasing activity over the past three months surpassed the second quarter of 2011’s leasing total by 85.2% and was an increase of over one and a half times the total recorded the same time last year. The rise in leasing activity, coupled with strong user sales activity, allowed the market to record 981,728sf of overall absorption over the past three months, bringing the year-to-date total to slightly less than 1.5 msf.
Contrary to the trend of the first half of the year, some significantly larger leases were completed during the third quarter. The most significant leases included VF Imagewear’s 222,000sf lease in Oak Creek Distribution Center I, Head Distributing Company’s 165,240sf lease in Sabal Park Distribution Center 300, and Builder’s First Choice’s 122,216sf lease at 1602 Industrial Park Drive in Plant City.
Additionally, the favorable lease terms that could be obtained in the market swayed many of the companies into pulling the trigger on acquiring new space during the third quarter. Even as asking direct net rental rates slowly began to creep upward during the quarter, averaging $5.54 psf at the close of the quarter, tenants still held most of the cards in lease negotiations and could still obtain effective rents well below asking.
Outlook
As the economy improves and consumer and business confidence gets stronger, Cushman & Wakefield anticipates the Tampa industrial market will continue to demonstrate positive progress in the final quarter of 2011 and well into 2012.
The absence of new industrial product currently under construction and the expected rise in both industrial user and investor demand, we should to see the market’s vacancy rate to continue to trend downward and asking rental rates to slowly begin to rise in the coming months.
