Real estate, in general, is about location. Location affects the types of tenants you are most likely to attract, the amount of inventory entering the market, available amenities, liquidity, asking rents, competition, and so much more. All of these factors impact the value of your property. As a non-user investor, growth in the value of your property is one of the most important factors to consider, along with asking rents, the potential interest of quality tenants, and the competition from competitive space in the vicinity. Similarly, as a user/owner, growth in the value of your property is of interest.
In this mid-year snapshot, we’ll take a look at each submarket for a flash update as a preview of my upcoming mid-year report.
East Tampa is looking good. Demand, mostly from financial services firms and banking institutions, has remained strong contributing to a vacancy rate well below the 20-year average. Strong and steady demand has allowed the submarket’s annual rent growth to remain elevated and stand out as one of the best of the city’s submarkets.
East Tampa’s inventory, however, is among the oldest in the metro, which contributes to the submarket’s challenge in attracting top tenants. The majority of the higher-grade inventory is located along I-75, which effectively bisects the submarket.
The submarket has had very little new construction, except for the occasional build-to-suit medical office or back-end financial services project.
Despite the inventory age challenges, investment activity is booming. Last year, East Tampa experienced the third-highest sales volume this cycle and pricing seems to have bottomed out, as cap rates have slowly started making their way back up.
East Tampa Snapshot
After an all-time vacancy low last year, Northeast Tampa has seen its fundamentals start to slip over the past three quarters. A number of large tenant move-outs, including firms such as Time, Inc., Zenith Education Group, and Express Scripts have contributed to the trend. However, so far, rent growth has not been impacted, remaining at about twice the historical average.
The Northeast Tampa submarket is heavily influeced by the University of Florida, which which has a major medical school with affiliated medical and research facilities. This contributes to a market composition weighted by office-using tenants in the area, including many healthcare services and medical research firms. The finance and insurance sector also plays a key role in driving office demand.
The Northeast Tampa has a sizable amount of suburban inventory, with approximately 33% in the high-end category. This compares to about 25% in the metro area. Key office nodes are near the University of South Florida and along I-75 in the northwestern quadrant.
While new inventory has been lacking this cycle, the large number of move-outs are creating ample opportunities for future demand. Meanwhile, investment activity has recently increased with sales volumes over twice the historical average for each of the past three years.
Northeast Tampa Snapshot
Westshore is one of Tampa’s premier office submarkets, and rivals Downtown Tampa for the metro’s most prominent urban core CBD submarket. Westshore is home to the largest office inventory in the city with approximately 15% of the metro’s office space located there. It also is home to the second-largest share of the metro’s 4 & 5 Star properties.
The Westshore Submarket has a particularly well-diversified local economy, with high concentrations in finance and insurance, engineering, business consulting, and medical service. This diversity guels demand, which remains continuously strong. Also contributing to that demand is the low levels of new office construction this cycle, pushing the vacancy rate into the single digits for the first time in a decade. However, there has been some loosening over the past three quarters, primarily from a handful of large tenant vacancies such as Laser Spine Institute. The looser fundamentals could continue to be challenged, as the pipeline has become more active.
Asking rents in Westshore are among the highest in Tampa, typically vying for first position against downtown Tampa, and that rent growth is expected to continue in the near term.
The submarket’s investment activity is among the more robust in Tampa, thanks to its high-quality assets. Although this year got off to a relatively slow start, demand has started to pick up, including a $53.3 million portfolio transaction of Concourse Center in May.
Northwest Tampa is in good shape for a number of reasons. Fundamentals look good and vacancies remain low, reaching an all-time low at the beginning of this year. The lack of recent construction has contributed to consistently moderate demand, along with good absorption, and rent growth. Nominal average asking rents and rent growth have typically remained in the middle of the Tampa submarket spectrum. This year, however, rent growth has incrased, moving Northwest Tampa to the top of the metro lineup.
Northwest Tampa Snapshot
Gateway’s footprint is smaller than some of the other submarkets, yet it is home to a high concentration of higher-quality inventory, and one of the few of the city’s submarkets with 5 Star inventory. The ratio of 4 & 5 Star inventory is almost double the metro level, and the average building size is among the biggest of Tampa office submarkets.
Raymond James, which has its corporate headquarters in Gateway and is one of the region’s major financial tenants, joins a number of the metro’s largest employers in the submarket.
The majority of the inventory is clustered in the Carillon Corporate Park situated in the northeast quadrant.
With moderate construction over the last decade and mild demand, fundamentals remain healthier than the long-term trend. However, demand has been waning of late, with a gently rising average vacancy rate. Average asking rents tend to be near the metro average and annual rent growth is elevated and among the higher submarkets in Tampa.
Gateway has a greater concentration of owner-occupied SF than the typical Tampa submarket. As a heavily owner-user submarket, liquidity and sales activity are relatively low. In 2018, transactions were up somewhat, posting the third largest sales volume this cycle. Pricing has continued to climb with gently compressing cap rates.
Stay tuned for my in-depth report on the Tampa Office Market next month!