- Size and Inventory: Tampa hosts the largest office market in Florida, with over 128 million square feet (SF) of office inventory.
- Shift in Demand: There’s a noticeable shift in how tenants utilize office space, with a trend towards occupying less space than before the pandemic, influencing the overall market dynamics.
- Sublease Surge: Tampa’s office market is experiencing an influx of sublease space, contributing to over 100 large office availabilities (over 20,000 SF) remaining on the market for over a year.
- Market Bifurcation: Performance disparity exists between the core submarkets like Westshore and Downtown Tampa, which are doing well due to new, top-tier constructions, and suburban submarkets that are struggling.
- Sublease Space Challenges: With 3.4 million SF of available sublease space, Tampa faces significant market strain, having the highest sublease availability rate in Florida.
- Negative Absorption: The office market has seen negative absorption, around -360,000 SF over the past year, indicating a decreased amount of leased office space.
- Class A Demand: Despite overall challenges, demand for Class A office space has driven asking rents to historic highs, averaging $28.00/SF, a 3.5% increase year over year.
- Investment Activity: Tampa is Florida’s most active office investment market, with approximately $1.2 billion in total sales volume over the past 12 months, outperforming Orlando and Jacksonville combined.
- Steady Investment Volume: The market has maintained consistent investment volume, averaging around $300 million in quarterly sales over the past five quarters, with office pricing averaging $198/SF.
- Forecast: CoStar anticipates a potential decline in pricing and an increase in capitalization rates (cap rates) over the upcoming quarters, reflecting market adjustments.
Page Contents
Shrinking Office Footprints and Negative Absorption
Tampa’s Changing Office Dynamics
Tenants are leaving large offices in outer areas for smaller spaces in Westshore and Downtown Tampa. This trend is increasing available office space. The absorption rate fell to -360,000 SF in the last year. Later move-outs will offset positive absorption in early 2023, predicting another year of negative absorption.
Office Leasing Trends in 2023
Leasing activity slowed, with average lease sizes down 30% from 2019. Some law firms in Downtown Tampa are expanding, going against the trend. Large leases by law firms highlight a niche expansion trend in the core areas.
Vacancy Rates and Market Disparities
Tampa’s office vacancy rate has been over 9% for five quarters, now at 9.3%. Westshore and Downtown Tampa see vacancy declines, while Northeast Tampa’s rate rises. Upcoming tenant exits will likely increase vacancy rates further.
Sublease Space Impact
Tampa leads Florida in sublease availability, with 3.4 million SF on the market. Class-A building subleases are attracting larger tenants. Notable subleases include New York Life and Morgan Stanley, showing active sublease market participation.
Resilient Rent Growth Amid Market Challenges
Steadfast Asking Rents in Tampa
Despite rising vacancies, Tampa’s landlords have maintained asking rents. Rent growth remained positive, surpassing the national and other Florida markets’ average, and asking rates now average $28.00/SF, a 3.5% increase from last year. This trend is expected to continue, albeit at a slowing pace.
Landlord Strategies: Concessions over Rent Reductions
Facing shifting office demand, landlords prefer offering concessions to lowering rents. For instance, a lease in Westshore included six months of free rent, highlighting landlords’ flexibility in retaining value while accommodating tenants.
Suburban Markets Lead Rent Gains
With their 5% rent increases, South Pinellas and Mid-Pinellas lead Tampa’s suburban markets. These areas offer more affordable options, with rents under $25/SF, contrasting with the premium spaces in Westshore and Downtown Tampa.
Premium Pricing in Core Submarkets
Westshore and Downtown command the highest rents, over $35/SF. High-profile leases, like Matthews’ at $58/SF, exemplify the premium costs for top-tier spaces in these submarkets.
Shift in New Construction Trends
Slowing New Construction Momentum
New office construction in Tampa has slowed, with 1.2 million SF underway, making up less than 1% of total inventory. Economic concerns slow the pace and will likely continue throughout the year.
Midtown Tampa’s Expanding Skyline
The Midtown West building’s success has spurred the development of Midtown Place, set to become Westshore’s tallest. TECO’s move to this Class A tower marks a significant shift, signaling confidence in new developments despite broader market hesitations.
Tampa’s Booming Office Market Transactions
High Transaction Volume in Tampa
Tampa leads Florida in office market sales, hitting $1.2 billion over the past year. The city maintained an average of $300 million in quarterly sales, outpacing Miami significantly in the same period.
Major Sales Amid Economic Uncertainty
Despite market volatility, significant transactions occur. Ally Capital Group’s acquisition of Urban Centre for $123 million highlights active major market plays, demonstrating confidence in Tampa’s office sector.
Private Investment Gains Momentum
With some institutional investors pausing, private buyers have seized market opportunities, making up half of the significant sales. Investments like the Suncoast Crossings purchase underscore the appeal of stable, well-leased properties.
Stable Cash Flows Attract Buyers
The demand for buildings with solid occupancy rates is strong, illustrated by the sale of WiPro’s building in Westshore. Such transactions reflect the market’s valuation of dependable cash flows despite overall flat office pricing.
Office Pricing and Future Outlook
While Tampa’s office pricing remains steady at $198/SF, it sits between Jacksonville’s and Miami’s rates. Rising cap rates amid interest rate fluctuations signal cautious optimism about the market’s direction in the near term.
Closing Thoughts
In summary, Tampa’s office market navigates a complex landscape of demand shifts, rent resilience, and strategic development. Despite challenges, opportunities abound for savvy investors. Our analysis underscores the importance of nuanced understanding in leveraging these dynamics. For personalized investment strategies and insights, contact Lumicre.