Why Now May be the Time to Negotiate New Industrial Leases

Saint Petersburg

ORLANDO—Tampa Bay’s economy is still improving. The region has sustained an unemployment rate decline, with 4.5% as of February 2016. That’s a 100-bps dip year-over-year. Industrial vacancy declined 40 bps during the same period partly due to healthy absorption of nearly 1.7 million square feet, according to Avison Young ‘s Spring 2016 Industrial Market Report for North America and the UK. And industrial rental rates continued to strengthen, rising $0.11 per square foot since the first quarter of 2015. Lisa Ross , senior vice president, Avison Young tells Globest.com the market dynamics are changing. “In addition to the strong organic growth we are accustomed to in Tampa,” she says, “we are now seeing an influx of national and international companies entering our market.” E-commerce and third-party logistics providers expanding operations helped drive strong industrial leasing activity last year. Behind those drivers are an improving housing market, a healthy construction sector and Amazon’s two recently-opened distribution centers. Avison reports strong tenant interest and healthy business expansion have resulted in a shortage of larger blocks of industrial space. One of the strongest trends outlined in the report is distribution centers moving closer to the end-user with industrial growth pushing along the Interstate 4 Corridor and significant future development planned in the Lakeland area. Meanwhile, speculative construction underway is should meet some of the current demand for space and still make room for a steady decline in vacancy. Avison predicts industrial rental rates will keep posting incremental gains, particularly for newly developed space and well- located properties. The firm specifically pointed to industrial assets in the East Side and Airport/Westshore submarkets. Trey Carswell , a principal at Avison Young, suggests now is the time to renegotiate leases. “With the four largest industrial owners by square feet all over 96%occupied and limited spec development currently underway,” he says, “we expect to see a continued increase in lease rates.” Significant capital is being invested in the industrial sector with continued strong investment activity expected in 2016, according to Avison’s report. Year-over-year, 46 industrial sales accounted for 9.3 million square feet and dollar volume of $431 million. The largest sales Avison recorded included Evergreen Industrial ‘s $103-million acquisition of a 32-building portfolio in the Mid-Pinellas/Gateway submarket, and the disposition of the 955,000-square-foot Tampa Distribution Center on Tampa’s east side. Representing the largest single-site transaction in more than five years, the Tampa Distribution Center traded for just under $43.4 million, or $45 per square foot.