(Carl Cronan is editor of Real Estate Florida.)
TAMPA, FL-Only $25 million worth of office investment sales was recorded locally during the first quarter, with the Westshore 500 sale making up the lion's share, according to a new research report by GVA Advantis. The minimal activity in the market is a far cry from recent years, when total sales exceeded $650 million in 2006.
"Even though sales activity is expected to remain restrained for 2009, it appears that later this year capital will re-enter the market and transaction volume will likely increase," says Randy Smith, regional director of research with GVA Advantis in Tampa. He adds that reduced investor demand and downward pressure on market rents will keep office cap rates trending upward.
The 10-story, 129,000-square-foot Westshore 500 building, at Interstate 275 and Westshore Boulevard, was acquired by Orlando-based Eola Capital in February for $20.1 million, or $155 per square foot, at a cap rate of 7.5%. Smith says the transaction set a fleeting benchmark for class A office properties in the Tampa Bay market. Westshore 500 opened in 1984 and was held since 1998 by its prior owner, Principal Financial Group Inc.
"For high-risk investors, distressed assets have presented very few opportunities in Tampa so far this year, but this could change with more commercial loans maturing in the coming months," Smith says. He notes that investors seeking long-term potential will target high-quality properties with stable incomes, and the local market has several offerings of this caliber.
Earlier this year, Marcus & Millichap predicted that 2009 asking rents for Tampa office space will fall back to their mid-2006 level of $21 per square foot, with vacancy pushing above 20%, with concessions climbing to about 17% of asking rents. Cap rates are also expected to push upward from the high 8% to low 9% range at the end of last year.
"One of the primary questions for investors in the months ahead is where rents and property revenues will settle," says Bryn Merrey, regional manager of Marcus & Millichap's Tampa office. Rising vacancy combined with increased leasing incentives implies that gross property revenues will decline at least 15% this year, putting downward pressure on pricing, he says.
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