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As inventory grows, Tampa Bay’s office space market sees upswing

With big tenants like Pfizer moving in, real estate analysts say Tampa Bay is outperforming other markets.
Midtown West, a new office tower at the Midtown Tampa development, is one of several new office projects that's come online in the first half of 2021.  Its tenants include South State Bank, which in late 2020 signed a deal to lease 10,000 square feet.
Midtown West, a new office tower at the Midtown Tampa development, is one of several new office projects that's come online in the first half of 2021. Its tenants include South State Bank, which in late 2020 signed a deal to lease 10,000 square feet. [ DOUGLAS R. CLIFFORD | Times ]
Published Aug. 3

Elizabeth Dvorak decided in December to move her company, office furniture distributor Workscapes, out of downtown Tampa.

Workscapes had spent five years headquartered at the BMO Harris Plaza tower, but struck a deal to lease a working showroom and distribution center in about 32,000 square feet of new warehouse space near Ybor City. That’s more than four times the space it had downtown. The company plans to move in the fall.

“The exciting thing about our expansion is we’ll be able to be our own case study,” said Dvorak, Workscapes’s owner and CEO. “This facility will allow us to not only pioneer and show the new way of working and the future of the workplace, but it will allow us to tell our whole story and show our clients and prospective clients how we take care of them.”

Workscapes isn’t the only company that’s moved or grown locally in the past year. After several fallow months during the heart of the coronavirus pandemic, Tampa Bay’s office market appears to be on a slight upswing.

About 900,000 square feet of new commercial space has hit Tampa Bay in 2021, according to real estate data tracking firm CoStar Group, which has kept the market’s vacancy rate fairly high. Yet demand has remained strong enough that, from April to June, Tampa Bay still saw positive absorption for the first time since last summer.

Related: New Tampa office tower opens on Water Street with wellness in mind

“Four months ago, it was three straight quarters where the market was just reeling,” said Brian Alford, CoStar’s director of market analytics for Florida. “But in the second quarter, everything picked up drastically. The net absorption virtually erased all three negative quarters prior.”

Demand for office space has pushed local asking rents up 1.6 percent year over year, according to CoStar, compared to a nationwide decrease of 1.4 percent.

“Tampa’s definitely an outlier,” Alford said. “The economy got back on track very quickly, whereas the national economy really just started picking up earlier this year. We had a lot of momentum heading into the pandemic, not as much of a drop, and then we picked that momentum back up much quicker.”

Most of what’s driving the market is happening in Hillsborough County, where new developments like Water Street Tampa, Midtown Tampa, Heights Union and SkyCenter One will add more than a million square feet to the market in 2021.

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So far in 2021, Tampa has already seen more than 300,000 square feet of leasing from companies new to the market, according to commercial real estate services firm JLL. That includes Pfizer (105,000 square feet), cybersecurity firm ID.me (103,000), industrial manufacturing company Signode (47,000) and tax tech firm CrossBorder Solutions (38,000). Of the half-million square feet of new space that came online last quarter, about a third was already leased or pre-leased.

“It’s delivering on the tail end of the pandemic, which timing-wise isn’t great, but it’s something that Tampa definitely needed,” said Kyle Koller, research manager for commercial real estate services firm CBRE. “Tampa’s been a market where, once it’s delivered, once it’s up, that’s when that interest really starts to peak. I think we’re right at that point right now.”

Related: Tampa Bay commercial sublease availability hits record high

One sign the recovery’s not over is Tampa Bay’s sublease inventory, which hit historic highs during the early months of the pandemic. It’s tapered off from last fall, dropping from 1.4 million square feet to just under 1.1 million square feet. But that’s only helped nudge up sublease rates, to the point where, according to JLL, they’re virtually in line with direct asking rents.

“That just represents a little bit of confidence of landlords that we’re going to get through this,” Koller said.

It’s difficult to predict what will happen over the next few months, as companies consider and reconsider how they might bring employees back to the office in light of new coronavirus variants.

But if sublease availability continues to fall, and with less new commercial space in the pipeline for the rest of 2021, Tampa Bay’s absorption rate is likely to keep going up.

“I think the worst of that is certainly behind us,” Alford said. “It’s tough to say what the next three or four months are going to hold, but six months or so from now, I think it’s looking pretty good.”