Q2 2016 Commercial Real Estate Roundup
July 11, 2016
Commercial Real Estate Roundup
As companies focus in on cost-competitive locations to expand or relocate, Tampa and Hillsborough County is increasingly on their radar. KPMG’s 2016 Competitive Alternatives study ranked Tampa No. 3 among major metros as the most cost-friendly big city in which to do business. The Tampa area has proven to be a great environment for establishing a new business and fostering its growth as well. The 2016 Kauffman Index of Growth Entrepreneurship provided evidence of the market’s hospitable environment for such ventures, ranking Tampa No. 26 among the 40 largest metros in the United States. Tampa’s rise in the ranks of this indicator demonstrates its positive entrepreneurial business growth from both company revenues and job creation perspectives.
Strong Job Gains
The Tampa metro job market has continued to boom, and now boasts the highest job demand in Florida. Year-over-year employment growth has exceeded 3.0 percent every month so far in 2016. May’s growth rate of 3.7 percent was the strongest yet, and represented a gain of 46,100 jobs over the same time last year. The office-using industry sectors led this growth, at an annual growth rate of 5.1 percent and accounting for nearly 18,000 of these new jobs.
These employment gains have created significant demand for local office space resulting in ever lower vacancy rates, particularly for Class A space. At the mid-point of this year, Cushman & Wakefield’s 2Q 2016 market statistics reported an overall vacancy rate of 12.2 percent for the Tampa/Hillsborough office market. One year ago, the market vacancy registered 14.4 percent. The contraction in Class A space has been even more dramatic – from 12.7 percent vacancy to 9.4 percent at the end of the second quarter.
This reduction in vacancy has triggered a steady rise in asking rental rates. Cushman & Wakefield’s market statistics report an average rate of $23.22 per square foot (PSF) at the end of 2Q 2016 – a 3 percent over-the-year increase. The asking rate for Class A space averaged $27.39 PSF, an 8 percent rise over the same period last year.
Developers of The Heights, a 43-acre waterfront site located just north of Tampa’s downtown district, have just announced plans for the restoration of the historic Tampa Armature Works and the construction of a multi-purpose event hall. At final build-out, The Heights project is expected to be an $820 million mixed- use development with residential, office and commercial components.
Planned office sites are being readied for launch. While there is no speculative office construction currently underway, developers are positioning their sites in anticipation of the next large office requirement.
Earlier this year, Strategic Property Partners’ planned $2 billion redevelopment project moved one step closer to reality. Kimmins Contracting Corporation was awarded a $35 million contract to begin construction of roadway improvements and infrastructure that will serve as the foundation for this new walkable waterfront community, located on 40 acres at the southern end of Tampa’s downtown core. Among the plans for this unique development are a new 400-500 room upscale hotel, a 650,000 square foot office tower and more than 300,000 square feet of retail and restaurant space.
Tampa Bay One, located on a high-profile 17-acre site near Interstate-75 and Dale Mabry Highway, is planned for 1.2 million square feet of office, retail, residential and hotel uses. Its owner, New York-based Bromley Cos., recently applied for 260-foot height variances to build four mixed-use towers on the site. The owner cited increased interest from a variety of sources.
New Office Ownership Plans Upgrades
Tampa’s strengthening market conditions have resulted in a sustained streak of significant office investment activity. New ownership groups have, in many cases, purchased office assets with plans for substantial building upgrades and the addition of new amenities tailored to meet changing workforce needs.
Rivergate Tower, a distinctive 31-story cylindrical office tower in downtown Tampa, was acquired last summer by Banyan Street Capital. Now the Miami-based owner is investing approximately $11 million into the property and building renovations are underway. These include hospitality style upgrades, renovated entry and exterior patio areas, and upgrades of the main lobby and multi-tenant corridors. New tenant amenities planned include a 6,000 square foot state-of-the-art fitness center, tenant amenity lounge with grab-n-go café and a high-end conference center that will seat up to 75 people.
Last September, Highwoods Properties Inc., owner of over 3 million square feet of Tampa office space, added to its portfolio by acquiring the iconic 528,000-square foot SunTrust Financial Centre. Located in the downtown business district, the 35-story office tower is topped with a distinctive ziggurat design which features a multicolor light display. Highwoods is planning extensive renovations to the common areas of the building, including the parking garage, exterior plaza, fitness center and conference center. Also in the works is the addition of a collaborative lounge complete with an exterior terrace. Highwoods hopes to have these upgrades completed by the first quarter of 2017.
In February, Renaissance Center, a 532,000-square foot Class A office park was acquired for $108 million by Vision Properties, based in New Jersey. The five building campus is located just north of Tampa International Airport and is fully leased to Capital One Financial Corp. and Wellcare Health Plans Inc. The sale also included a four acre development site, which is permitted for an additional 111,600 square foot office building. The owner has reported strong interest from build-to-suit prospects.
Based upon the Florida and Metro Forecast just released by the University of Central Florida’s Institute for Economic Competitiveness, the surge in the Tampa metro’s employment numbers will maintain positive momentum into the coming year. The projected annual growth for 2017 is almost 35,000 new jobs. Especially encouraging for office demand is the fact that the office-using industry sectors will account for over 50 percent of these new jobs. Professional and business services will be the primary driver – this major industry sector is projected to grow at a blistering 6.8 percent in 2017 and will add almost 16,000 new jobs.
Based upon these positive projections, Tampa’s office market will continue to experience increased occupancy levels and rising rental rates. Tighter market conditions will increase the likelihood of new office development as we move into next year.