Beyond the data, what’s the state of Tampa’s office market? Unemployment rates are falling but there is no new office construction. Landlords have to deal with a shifting market once again.
GlobeSt.com caught up with Clay Wommack, director for Franklin Street’s Office and Industrial Division, to get some answers. Wommack specializes in tenant and landlord representation for property owners and institutional clients throughout the Tampa Bay region. With more than 25 years of experience and more than 15 million square feet-worth of leasing transactions.
GlobeSt.com: In the Tampa Bay office market, which areas are thriving and what trends are you seeing?
Wommack: In the past quarter, the most active market has been the Interstate 75 East Tampa region, primarily because it has the largest vacancies in terms of quality of product. As far as trends, absorption in all submarkets has been the highest we’ve seen since pre-recession time for Tampa and Saint Petersburg. That being said, rates have not increased dramatically across asset classes.
GlobeSt.com: The Tampa-Saint Petersburg unemployment rate fell to 5.3% in June from 6.2% one year earlier. Why hasn’t the improvement in the economy resulted in lower occupancy rates? Aren’t companies hiring more workers and taking more space as a result?
Wommack: The answer involves basic supply and demand fundamentals. As the absorption rate increases and supply decreases, rates will continue to grow, especially as the market becomes more of a “landlord market.”
GlobeSt.com: Why is there no new office construction and under what conditions might it begin?
Wommack: Although demand probably dictates new product, the rates the market is giving now just aren’t at the level or price range that warrant new construction. The price of land and construction continue to rise as well, in turn making new construction more challenging. Most experts agree that rates in Tampa will need to be $36 per rentable square foot/full service gross or higher for investment returns to work on new construction. Right now, the highest rates the market is seeing are about $31 to 32 rentable square foot/full service gross.
GlobeSt.com: How are landlords dealing with the fact that the vacancy rate remains a high 15% and is dropping only very slowly?
Wommack: Sophisticated landlords are very aware of market conditions, and price, or reprice, their product accordingly. Renewal rates will be very challenging for many tenants that are coming off of five- or seven-year lease terms. Landlords recognize that many tenants do not have the variety of choice any longer in the market to “shop” for space and that most landlords have curtailed many of their concessions, such as moving allowances that were so prevalent during the recession era.