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Empty offices, eager landlords await takers in Pasco

Office space sits vacant off Ancient Oaks Boulevard and State Road 54 in Wesley Chapel.

JANEL SCHROEDER-NORTON | Times

Office space sits vacant off Ancient Oaks Boulevard and State Road 54 in Wesley Chapel.

Up and down State Road 54, from Trinity to Wesley Chapel, the economic trend becomes evident: For lease. For sale. For lease. For sale.

Those signs are not for houses. They are for office space.

Like the rest of the Tampa Bay area, Pasco County is seeing its greatest rise in office space vacancies in about five years amid company downsizing and a slowdown in the housing market.

Between April and June, the vacancy rate in Pasco hit 14.7 percent, according to the Colliers Arnold real estate firm. That's nearly double the rate, 7.4 percent, from that same period a year ago.

Tampa Bay-wide, the office vacancy rate is 12.2 percent.

"There's a lot of office space out there," said Matt Shaw of Prudential Commercial Real Estate, which represents the office complex Devonwood on SR 54 near Wesley Chapel. "It's a tough time to be a landlord."

Pasco County has more inventory to fill than it did just a few years ago. In the second quarter of this year, Pasco had 3.6-million square feet of office space, Colliers Arnold says. In 2005, the figure was 3.1-million.

Average lease rates are starting to come back down after shooting up a year ago, and building owners aren't getting the kind of money they may have anticipated.

"Now they're just saying, 'How can we unload it?' or 'How do we make even just to ride it out?' " Shaw said.

From boom to bust

Investors with plenty of money had seen the housing boom and figured they could turn a profit with professional office buildings to support the residential growth. In few places is that as evident as the SR 54 corridor.

"We're in a position we're in now because money was so easy to get," said Johnny Wild, owner of Wild Realty & Investment. "At a time, it was a frenzy."

"It all made sense," said Mark Klein, president of the Klein & Heuchan real estate firm, which represents several office owners in Pasco. "There was tremendous demand in offices for the Trinity area around the new hospital. Everybody wanted to get there. It was real demand."

Then the housing market detonated. Job growth slowed. Potential office tenants lost their confidence and became reluctant to sign leases.

Now space that would have gone like hotcakes a year or two ago sits vacant.

Dan Pitts of Pitts Realty, for instance, is auctioning off a six-unit office and retail building that sits right on SR 54 at the Osprey Cove complex in Land O'Lakes. "That building should have gone a long time ago," he said. "But it seems like everybody is afraid to sign. People are afraid to move forward."

It's hard to say when offices will start to fill up.

"There's too much inventory out there, but it's not disastrous," Klein said. "There's enough residential backup in that (Pasco) market to fuel a demand for what is out there and built today."

But millions more square feet of office space are in the project pipeline. Community Hospital alone, for instance, is adding 85,000 square feet of medical office space to its Trinity campus.

And even some real estate agents, who tend to emphasize the upside of building trends, say they are surprised by how much office space continues to come on line.

"I can't believe they're still building," Shaw said.

All of which is spelling the beginning of a tenant's or buyer's market as landlords become more and more willing to sweeten deals with a few months of free rent, reduced asking prices or free buildout.

On one listing, an owner even promised potential tenants they could pick out their own color of carpet and have it installed free.

This is a long way from the scenario of the last few years when brokers urged tenants to lock in leases before rents shot up.

"We are seeing the landlords have to make much more aggressive deals to get the tenants," said Heidi Tuttle-Beisner of Commercial Asset Partners Realty.

Reach Jodie Tillman at jtillman@sptimes.com or (727)869-6247.

>>Pasco numbers

Office vacancy rate

2008: 14.7 percent

2007: 7.4 percent

2006: 6.2 percent

2005: 4.7 percent

Average office lease rates

2008: $22.87 (down slightly from the first quarter rate of $23.24)

2007: $21.74

2006: $16.20

2005: $16.95

Office inventory

(in square feet)

2008: 3.6-million

2007: 3.4-million

2006: 3.2-million

2005: 3.1-million

All figures reflect the second quarter (April through June). Lease rates are per square foot per year.

Source: Colliers Arnold

Empty offices, eager landlords await takers in Pasco 07/27/08 [Last modified: Wednesday, July 30, 2008 3:36pm]
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