As a Tampa commercial real estate broker who works with landlords and sellers of office and medical buildings, I need to know about current market trends and basic financial concepts so I can advise clients properly to make smart choices. In conducting my research for this update, I came across multiple sources, including the latest study (12/5/23) on the Tampa office market from CoStar which goes into great detail about the current state of the market and shows that stakeholders face both problems and chances.

Here’s a snapshot of the market. 

The State of Tampa’s Office Market

Tampa boasts the largest office (Westshore Business District) market in Florida with an impressive inventory of nearly 130 million square feet of office space. After a rough time in 2021 and 2022 when tenants were leaving their office space, the market seems to be leveling off and getting back on track. 

The overall vacancy rate has stayed at about 9% and there has been positive absorption for three quarters in a row, especially in top submarkets like Downtown Tampa and Westshore. This shift points to a slow recovery in the works and increased interest in these key CBDs. 

The large amount of open sublease space is a problem that keeps coming up in the Tampa office market. Over the past year, the market has retained more than 3 million square feet of this kind of sublease space, though this is 15% less than the year before.

Sublease Space: A Persistent Challenge

In the summer of 2022, there were 3.7 million square feet of available sublease rental space, mostly in 4- and 5-star buildings that were in great locations and had lots of amenities.

There has been a lot of leasing activity lately, especially in submarkets like Westshore and Northwest Tampa. However, the current data show that most of the available sublease space is in less desirable areas which may continue to have an impact on the market as a whole.

Leasing Trends: A Shift Towards Efficiency

Tampa is leasing at the same rate as it was before the pandemic. By the end of the third quarter of 2023, about five million square feet will have been rented. 

One clear trend is the move toward smaller, more efficient areas in buildings that are better placed. Companies like Johnson & Johnson, which cut its Westshore base by 60%, and Grow Financial, which preleased 50,000 square feet in the Gas Worx office building, are good examples of this trend.

The average lease size has shrunk to just under 4,000 square feet.

The Basics of Money: Rising Rent And Investment Trends

When it comes to money, asking rents have gone up +3.2% year-over-year, hitting $29.00 per square foot. This growth is higher than Orlando’s, which shows that Tampa’s market is performing better in comparison. 

The growth rate for 4- and 5-star office product, on the other hand, has slowed down, dropping two percentage points from almost +5% to +3%.

With a total of $913 million in sales over the past year, Tampa’s property market has been the busiest in Florida. Prices have stayed the same at just under $200 per square foot even though investing activity slowed down over the summer. 

Cap rates have interestingly gone up to 8.5%, which shows a change in how the market sees things and could mean that investors are being more careful.

Resilience of the Economy: Job and Population Growth

The office market has performed well thanks in large part to Tampa’s robust economy. Driven by job and population growth, the office market has been fueled by the city’s continued strength. 

More than 412,000 more people have moved into the city in the last ten years. Between July 2021 and July 2022, Florida was the fastest-growing state in the country, attracting a wide range of people and businesses making the move from across the country.

In addition, over the last year, 44,900 new jobs have been added in the Tampa area alone. Sectors experiencing growth include education, health services, and business services. There have been job losses in the information and financial activities sectors, though, which could change the need for office space from those categories.

In conclusion

Even though the Tampa office market experienced some challenges as a result of the pandemic, it also offers landlords, sellers, and investors several benefits, from continued rent growth and resilience to a strong economic foundation. 

Sources:

“Tampa – FL-Office-Market-2023-12-05.pdf,” a detailed report on the state of the Tampa office market as of December 5, 2023【8†source】【12†source】.

This blog post provides a comprehensive overview, highlighting the key trends and financial fundamentals, while also offering insights into the broader economic context that shapes the Tampa office market.