(Carl Cronan is editor of Real Estate Florida.)
TAMPA, FL-Only a few years ago, local office brokers were telling tenants to lock in their best deals early on renewals and relocations to avoid anticipated rent hikes. Those who waited are now being rewarded for their patience because of the economy's sudden slide, but for some it is more a question of whether they are still able to sign new leases, let alone seek favorable terms.
Office vacancy in the Tampa Bay market exceeded 18% by the end of 2008, jumping nearly four percentage points over the year and more than two points from the third quarter, according to CB Richard Ellis. Massive layoffs and rightsizing by area companies has led to decreased demand for space, which in turn has led to greater availability of sublease and "shadow" space.
Limitations on capital availability are also leading to more lease renewals rather than relocations, with tenants negotiating for shorter or year-to-year terms rather than reduced rent. Average asking rents for Tampa Bay office space has stabilized over the year at just over $22 per square foot, with only about $5 differential between class A and B space, CBRE reports.
"We haven't seen the rental rate drop that would be expected with all the doom and gloom," Bill Obregon, senior vice president with CBRE's Tampa office, tells GlobeSt.com. He notes that landlords are offering improvement allowances and rent breaks to retain tenants, but it may be difficult to hold the line on pricing as the recession lingers.
Leasing activity within the Tampa Bay market totaled 2.8 million square feet last year, with class B space slightly edging class A, according to CBRE. Meanwhile, net absorption for the year totaled negative 1.3 million square feet, nearly half of which was recorded in the Westshore submarket.
Westshore, which once enjoyed office vacancy in the single digits, reached 16.3% by the end of 2008. Yet the submarket still commands the Bay area's highest office rents at $26.42 per square foot. A number of new buildings have added pricier space to Westshore's 11 million square feet of inventory lately, including the new 247,000-square-foot Corporate Center Four at International Plaza, which has its grand opening Thursday.
Among other large office submarkets around Tampa Bay, Downtown Tampa's vacancy rate reached 17.3% by year end, while East Tampa, Mid-Pinellas County and Downtown St. Petersburg ended well above 20%, CBRE figures show. Hillsborough County rents averaged $23 per square foot, while Pinellas County averaged just under $21 per square foot.
While the coming year is expected to be a tough one for Tampa Bay office landlords, it could take a little longer for the prospects of rising rents and near-capacity buildings to return. "Even if the economy recovers sometime in 2009, you're going to see commercial real estate continue to suffer because it lags nine to 12 months behind the economy," Obregon says.
Lackluster tenant demand may make things worse, which other brokerages point out makes it imperative for landlords to retain their rent rolls in the coming year. "Current tenants should be treated better than ever to keep them in place," observes Karen Temmen, research director with Clearwater-based Colliers Arnold, adding that prospective tenants should consult with tenant representatives to determine their best course of action.
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