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Should this key block of downtown St. Petersburg be turned into office space or more apartments and condos?

ST. PETERSBURG — For a decade, the big question about the 400 block of Central Avenue was: How do you get rid of the decrepit old buildings there to allow room for redevelopment?

Now that demolition is underway and the site soon will be cleared, the question is: What kind of redevelopment would be best for a block in the heart of one of Florida's most vibrant downtowns?

Mayor Rick Kriseman has an answer: a hotel and especially office space.

"Our offices downtown are virtually 100 percent occupied and as we are trying to attract more businesses to the city and a lot of that wants to be downtown, we need places to put them,'' Kriseman said in a recent interview. "And obviously there's a lot of folks who visit the area who want to stay in the heart of downtown and walk."

Related: As development deal nears for 400 block of Central Avenue, a look inside the St. Pete buildings frozen in time

In the near future, though, the mayor might not get his wish, at least when it comes to a new office building.

Although several downtown St. Petersburg buildings are almost totally occupied, the area's overall vacancy rate is 7 percent, the brokerage Cushman & Wakefield reports. The rate could rise even further when 113,000 square feet of space hit the market next year after renovations are competed in the 490 First Building, which the Tampa Bay Times sold in April. (The paper will continue to rent three floors.)

Previous coverage: Tampa Bay Times sells St. Petersburg headquarters, will remain as tenant

And though it's gone up, the average rent for prime Class A office space in downtown St. Petersburg is just $25.67 per square foot — well below the $33 to $35 needed to justify the cost of new office construction, experts say. At the same time, the rents are high enough and parking space scarce enough that some businesses are leaving downtown instead of moving in.

Put all those factors together and "St. Pete is not ready for a new office building now — that is, a smaller building that may hit the market within 12 to 24 months,'' said Wendy Giffin, a Cushman & Wakefield director. "However, if a building were announced and it came out of the ground in two to three years, we will definitely be ready barring any large unpredicted vacancies.''

The Red Apple Group, a New York company headed by billionaire John Catsimatidis, is under contract to buy the 400 Central block after workers finish demolishing a long-vacant hotel and bank. Catsimatidis did not return calls for comment for this story, but he previously indicated he's thinking bigger (not smaller) and residential (not office) when it comes to a new building on the site.

Related: Photo gallery: Remembering the Pheil hotel building

''St. Pete needs a skyline,'' he said in July as Red Apple released a rendering of a soaring tower that would dwarf everything around it. Catsimatidis spoke admiringly of ONE St. Petersburg, a 253-unit condo tower under construction a few blocks away.

"I think it's 60 or 70 percent sold-out already,'' he said. "If it's 60 or 70 percent sold, I guess there is a need" for more residences downtown.

Related: Billionaire developer says St. Pete needs a skyline in revealing soaring tower to replace 'cheesegrater' building

How would Kriseman feel if Red Apple opted for a primarily residential project? "It's certainly not my first choice,'' he said. "I think we have ample residential when it all comes online. That's certainly not our greatest need.''

Kriseman, said, however, that Red Apple seemed open to suggestions and wanted to do a project "that is great for the city.'' A possible compromise: a tower with ground-floor retail space and offices and residences above.

"If I were Red Apple, I would be looking at a strong mixed-use component,'' Giffin said. "I think we'd be ready for some office product in a few years — not a full office building but several floors of offices before residential. That would be a convenience factor to people who live above.''

Related: How long can the good times roll for Tampa Bay's housing market before the bubble bursts?

An absolute must for any major new downtown project is parking, Giffin says. Among the structures being demolished on the 400 Central block is a garage that provided 200 or so parking spaces for nearby businesses. The loss of those spaces has enabled other downtown garages to push their monthly reserved parking rate to $100 or more.

Parking in downtown St. Petersburg is "very limited and getting more limited,'' Giffin said. "Between the combination of that and increasing (office) rental rates, we've seen some tenants move out of the central business district and look at locations north on Fourth (Street) and in the Gateway area.''

On the flip side, the departure of some businesses from downtown has opened up more space for those still there that are seeking to expand, Giffin says.

Kriseman's wish for a hotel in addition to office space raises another question: Could downtown St. Petersburg draw enough visitors to fill two new upscale hotels within three blocks of each other?

Developers of ONE St. Petersburg are building a 174-room Hyatt next to the condo tower. Kent Schwarz, executive vice president of Colliers International Hotel, calculated that the Hyatt alone would need almost 22,000 "stays'' a year — a guest checking in for at least two nights — to meet revenue projections.

"They need to do that either by pulling from other hotels or by increased demand,'' he said. "St. Pete is becoming such a wonderful area that Aunt Emily does come to visit but how often does Aunt Emily need a hotel room?''

Schwarz notes, though, that nearby office buildings can be a prime generator of business for hotels that are not in major tourist areas like the beaches or Orlando.

"So if there is an office building there (on the 400 Central block) that would certainly help'' a hotel, he said.

Also helping is the fact that downtown St. Petersburg is booming so much that the average square foot office rent needed to justify new construction might be reached sooner than expected.

"It's trending to be a very popular work-live-play destination,'' said Melanie Jackson, director of office services for Colliers International. "A lot of companies downtown are hiring people, and people are moving into those 2,000 (new) apartments and townhouses and condos. We have a lot of movement in the downtown market but there's a pretty big delta between $26 and $33 a square foot.''

Contact Susan Taylor Martin at smartin@tampabay.com or (727) 893-8642. Follow @susanskate

Tampa Bay Office Rents and Vacancies*

AreaAverage square foot rentVacancy rate
Downtown St. Petersburg$25.677.1%
St. Petersburg Gateway$19.9318.9%
Downtown Clearwater$17.0711.8%
Downtown Tampa$25.2012.6%
Westshore$26.438.9%
*Third quarter 2016

Source: Cushman & Wakefield

Should this key block of downtown St. Petersburg be turned into office space or more apartments and condos? 10/20/16 [Last modified: Thursday, October 20, 2016 10:27am]
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