Office demand rises in Tampa Bay market

In the third quarter of 2010, the Tampa Bay Metropolitan Statistical Area’s economy continued to recover from the extreme downturn that hampered the area during 2008 and 2009.

Evidence of this improvement can be seen in the market’s job growth, which posted a positive increase of nearly 7,300 new jobs from February 2010 through August 2010.

Professional and business services, the industry sectors most closely correlated with the health of the office market, experienced a significant portion of the job growth over this time period, gaining 2,200 new positions. Furthermore, the area’s unemployment rate declined from 13.1% in January 2010 to 12.6% by August 2010.

As the job gains mounted throughout the region, office market fundamentals improved for the second straight quarter as overall vacancy decreased and quarterly absorption was once again positive.

Overview

Although the Tampa office market continues to struggle with abnormally high vacancy and subdued tenant demand, over the past three months overall vacancy continued to fall, with the marketwide overall vacancy rate declining to 18.9% at the close of the third quarter of 2010. This is a one-tenth of a percentage point decrease from mid-year 2010 and a four-tenths of a percentage point drop from the overall vacancy rate recorded this same time last year.

As can be expected with the reduction of vacant space available throughout the market, the third quarter recorded 25,378sf of positive overall absorption during the quarter, bringing the year-to-date absorption total to a scant, though still negative 30,472sf. And while the year-to-date 2010 absorption figure continues to remain in the red, when compared to the year-to-date absorption total of negative 915,654sf posted at the close of the third quarter of 2009, it is quite clear that the market has improved considerably during the last twelve months.

Tampa’s marketwide average office asking rental rate fell for the sixth quarter in a row, declining by $0.34 psf from last quarter and is down $1.06 psf from the third quarter of 2009 to a current average of $21.80 psf. Additionally, the combination of minimal tenant demand and an over-supply of available space has caused many building owners to increase lease concessions offered to tenants in order to secure deals, which has contributed to much lower negotiated effective rents when compared to leases signed in 2009.

Despite the uptick in tenant demand that occurred in the first half of 2010, new and expansion leasing activity dropped off considerably during the third quarter. Over the past three months just 314,642sf of leases were completed, down 43.1% from last quarter and 30.2% from the activity recorded in the third quarter of 2009.

While total activity was down, a few noteworthy leases were completed during the quarter. In a relocation move, Masonite Corporation leased 31,335sf in Tampa City Center, Acosta Sales and Marketing leased 29,534sf at Riverside at Telecom Park, and PRC, LLC completed a 20,436sf lease at Presidents Plaza II.

Forecast

With job growth continuing on an upward trajectory and as corporate confidence strengthens, demand in Tampa’s office market is expected to continue to rise in the final quarter of 2010 and into the first half of 2011. Additionally, overall vacancy should maintain its downward trend and asking rental rates will stabilize.