Eager to fill huge chunks of vacant office space throughout Pinellas County, landlords are offering rental rates that harken back to the 1980s when many of these buildings were built. With record-high vacancy rates, this is a tough market to predict and, for some, to ride out. The dilemma, says commercial real estate broker Hal Piper, is whether owners should lock in a five- or 10-year lease when prices are at the floor or do they hold out, hoping that in a year or two they can rent more space at higher prices?
"It's troubling to see this many large blocks of (vacant) office space. This is a perfect illustration of belt-tightening and consolidation of corporate America," said Piper, president of Piper Property Group in St. Petersburg. "But we're seeing a stabilization of lease rates and working on a recovery."
Several brokers agree rates seem to have hit bottom. Buildings are luring new tenants with free rent, moving expenses, generous budgets for retrofitting or all of the above.
"I've been doing this 25 years and these are some of the greatest lease opportunities that I've seen," said Scott Clendening of Commercial Partners Realty in St. Petersburg. "I don't see rates dropping below what I see as a new floor. I see values and rents stabilizing and occupancy levels slowly increasing."
Rates are largely between $15 to $21 a square foot in downtown St. Petersburg and outlying office buildings. Pinellas has a 23 percent vacancy rate compared with 20 percent in Hillsborough.
"When the vacancy rate several years ago was 7 to 8 percent in some submarkets we didn't see any free rent," said Jane Dizona, a vice president with CB Richard Ellis brokerage services in Tampa who is the leasing manager for Colonial Center Bayside on U.S. 19 in Clearwater among other properties.
Another real estate veteran, Mark Stroud, Marcus Partners' principal for the Florida region, is surprised at some of the perks on the table these days.
"I know of a 50,000-square-foot lease that included two (free) years. That was pretty extreme," he said. "I've had clients in the market for 10,000 to 15,000 square feet offered up to a year (of free rent) for a seven- to 10-year lease."
Not everyone gets a piece of the free-rent bonanza. Tenants with good credit and a decent-sized lease get the best offers.
"If you're a 2,000-, 3,000- or 5,000-square-foot tenant, which is largely what this market is, landlords aren't being so kind," Stroud added.
Who will fill the space?
Therein lies one of Pinellas County's biggest challenges. This is an economy made up mostly of small tenants and it's going to take a whole lot of them to fill gaps that have been steadily growing. First Central Tower at 360 Central Ave. in St. Petersburg has about 120,000 square feet vacant. Spectrum Tech Center in Largo has 112,000 square feet. Roosevelt Corporate Center III has nearly 110,000 square feet. Colonial Center Bayside has 80,000 square feet in its two buildings. And the list goes on.
"We're still not seeing new businesses come into the area," Stroud said. "A lot of the leasing activity, and there has been some activity in the last six to 10 months, is people who held off for two years renewing or extending or making decisions. You have people moving around the marketplace right now but nothing new is coming in of consequence, which is concerning me."
Pinellas County Economic Development director Mike Meidel thinks the area's smaller companies will lead the way to higher occupancy rates.
"One of the things that works to our advantage is the large number of small users we have," he said. "We have a pretty diverse mix of companies that take spaces in the 3,000-square-foot range. It helps not putting all of your eggs in one basket."
Of course, he'd also love to land a Fortune 500 company that needs to lease 75,000 square feet at once. To do that, Meidel points to another struggling real estate market that will help office real estate.
"The price of housing is affordable again for executive housing and for workers," he said, "so that makes it easier for people to relocate to the area because there are homes that are affordable at normal wage levels."
The likely businesses that will fill vacant space, be they existing or new to the area, are in the medical, technology and government services sectors. Clendening is about to sign a local government agency to a 20,000-square-foot lease at the Gandy Center in Pinellas Park.
While she predicts still more tenants will cut space when their leases come up for renewal, Dizona said some businesses are ripe for expansion.
"Companies have downsized as much as they can downsize and continue to function," she said. "So some are now busting at the seams, so we'll see some pent-up demand in the next several quarters."
Wendy Giffin, with Osprey Real Estate, says new tenants will start filling space in the next six months.
"There is a rainbow out there,'' said Giffin, the leasing agent for First Central Tower.
Space for creativity
After Bank of America decided to vacate One Progress Plaza in St. Petersburg, the building's owner, Kucera Properties, filled a whole floor with a tenant that is anything but office-related. Vue 19, a lounge offering live music, sushi and spectacular views, will open soon on the 19th floor. Its neighbors include venerable businesses such as Trenam Kempker Attorneys, Raymond James & Associates and Merrill Lynch.
"It's a risky kind of bold move," Stroud said. "I know some of the tenants aren't thrilled about it. It could work out to be a great play."
"The nightclub is a potentially conflicting use in an office tower," said Piper. "Are existing tenants going to stay if it turns out to be a problem?"
Kucera representatives could not be reached for comment.
Look to other cities for nontraditional ways of filling space. In Austin, Texas, young companies get can free space at the Austin Technology Incubator. The hope is one will grow into another Dell or Google.
Along with tax incentives and employee-training grants, Pinellas County has a few tricks in its bag as well, Meidel said. The STAR TEC Technology Enterprise center in Largo is a business accelerator program offering entrepreneurship assistance mostly for high-tech start-ups. Hallmark Development is offering discounted space to start-ups at the Airport Business Center near Largo.
Whatever the solution, it's likely to take time. A decade ago, downtown St. Petersburg faced high vacancy rates when Progress Energy bought Florida Power, triggering major consolidation, Piper pointed out.
"The backfill process was painful and long-lived," he said, but it happened. "And yes it will happen again."
News researcher Natalie Watson contributed to this report. Reach Katherine Snow Smith at (727) 893-8785 or firstname.lastname@example.org.
First Central Tower
360 Central Ave., St. Petersburg
Total building size: 249,543
Square feet available: 120,000
Roosevelt Corporate Center III
11101 Roosevelt Blvd., St. Petersburg
Total building size: 166,036
Square feet available: 109,824
Spectrum Tech Center
8550 Ulmerton Road, Largo
Total building size: 332,689
Square feet available: 112,000
Tech Data Buildings C & D
5380 Tech Data Drive, Clearwater
Total building size: 142,892 (two buildings combined)
Square feet available: 142,892