Friday, May 25, 2018
Business

SouthGate office tower waits for downtown Tampa workers

TAMPA — The ultra-modern SouthGate Tower was to be the starting domino of downtown's workplace revival, the first new office tower since 1992, when Hurricane Andrew raged and Boyz II Men topped the charts.

The 20-story tower was trumpeted as "the beginning of the beginning," as Republican National Convention host committee president Ken Jones called it, of building up a fresher, busier downtown.

But the celebration may have to wait. With too few tenants on board, downtown's big new hope has yet to break ground. Developers now plan to open for business a year later than expected, in the middle of 2015.

For all the talk of Tampa's buildup in arts and urban living, its longtime core of law, finance and white-collar workspace remains outdated and far from full. It has been 20 years since downtown built a new office tower, yet there's still a million square feet of empty workspace — nearly the size of International Plaza.

It's not just unemployment and economic unease draining the central business district. Competition from West Shore, corporate trimming and changing attitudes toward work outside the office stand to undermine downtown's workplace renaissance before it even begins.

"There hasn't been enough new migration or expansion of the tenant base downtown to really make sense for speculative development," said Ciminelli Real Estate Services managing principal Thomas McGeachy. Raising a new tower now, he added, "would just cannibalize what's already there."

Building back from a recession that emptied a fifth of downtown's office space, vacancies have improved to 15 percent and rental rates have climbed. About 200,000 square feet downtown were leased in new deals last year, on par with 2005, Jones Lang LaSalle data show, including big deals with a GE subsidiary, PNC Bank and Tampa Bay Lightning owner Jeff Vinik's hedge fund.

But the market will need a lot more than that to fill up 20 new floors at SouthGate. None of downtown's office towers are full and several whole floors are desolate, with nearly a quarter of the 22-story Wells Fargo Center sitting vacant.

At SouthGate, agents who have scouted for months have netted commitments for only a quarter of the tower's 400,000 square feet, Trammell Crow Co. managing director Bob Abberger said. As developer, he wants more leasing momentum before securing funding and turning dirt.

"What we still have is massive uncertainty affecting corporate America's decisionmaking," Abberger said. "We need to see a few more encouraging signs that Tampa is finally getting its stride."

Real estate brokers said though the market is showing improvement, SouthGate's delays came as little shock. "Where we are in the cycle, that shouldn't be a great surprise to anyone," Cushman & Wakefield senior managing director Larry Richey said. "It's just a matter of timing."

SouthGate's slowdown was triggered after developers missed forecasts for 2012, which Abberger called a "disappointing recovery year." But the delay could work in their favor, as firms now commanding millions of square feet downtown have leases set to expire within a few years and could opt to move somewhere new.

Downtown is still a power center for professionals seeking short walks to courthouses and government seats. New apartment towers and public projects like Riverwalk have injected some vigor to the city's center. For office dwellers, it still outguns downtown St. Petersburg, which has a similar vacancy rate but only a third the space.

Abberger said last year that SouthGate will be built "where corporate America wants to be." That honor, though, may be better suited for West Shore, Florida's largest business district boasting twice as much office space as downtown.

Close to the Tampa International Airport, the interstate and routes to St. Petersburg and Clearwater, West Shore sits at the nexus of Tampa's office workforce. Even with pricier rents than downtown, it has lower vacancy, at 13 percent, and last year it newly leased three times as much space.

It's also the only Tampa market now fielding big office construction, including the new 10-story home of PricewaterhouseCoopers, MetWest Two.

Plans show SouthGate still has a few advantages. At 20 stories tall, SouthGate would be shorter but wider than other downtown towers, a benefit for big tenants wanting to focus operations on one floor. Glass curtain walls, large fresh-air vents and efficient lights and water lines were designed for lower energy bills. A 1,200-car garage and a 350-suite on-site hotel could draw in employers, especially medical leaders tied to the University of South Florida's Center for Advanced Medical Learning & Simulation across the street.

SouthGate cheerleaders said its appeal would come largely from its freshness, making downtown's vintage monoliths look increasingly obsolete. Colliers International CEO Lee Arnold, whose firm is seeking leases for the tower, said demand would stem from bright-eyed executives seeking a "flight to new."

But SouthGate could face broader challenges from a rapidly changing office model. Blue-chip firms, hyper-vigilant for efficiencies, are renting less room and crowding workers closer to cut costs and spark creativity. Smart phones, cloud computing and changing work styles are leading employees to log their hours at home or in the field. And with the job market sputtering shakily to life, some executives remain hesitant to commit to long leases or large spaces.

"Every time you get some momentum going, someone shuts down another office or merges with another bank," McGeachy said. "There's been a step-forward, step-backward movement for a long time."

It's not all dark clouds over downtown's skyline. High-end "trophy" towers like SouthGate often field the most attention when corporate leaders return to the market, Jones Lang LaSalle managing director Chris Butler said.

Some stakeholders are optimistic that downtown has plenty of room to grow. Law firm Hill Ward Henderson just renewed a 12-year lease for four floors of Bank of America Plaza, with managing shareholder Jim Robbins saying, "Downtown has really continued to evolve in a very nice fashion."

Whether SouthGate will escape its mothballing in time to profit from that change remains up for debate. But Abberger said he's confident delays won't keep the tower out of downtown forever.

"There are still some scary things on the economic horizon, but I think Tampa is poised to outperform the market," Abberger said. "When you make your bets, you make them for the long-term. I happen to think Tampa is a great bet for the long-term."

Drew Harwell can be reached [email protected] or (727) 893-8252.

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