During the height of the Covid pandemic, many Tampa Bay employers were forced to leave their offices and pivot to a remote workforce model. As the pandemic subsides, the office market is bouncing back.
In the first quarter, St. Petersburg had an office vacancy rate of 3.5% – a historic low rate for the city. Meanwhile, Tampa had a 14.6% vacancy rate. Combined, the two rates in the metros average 11.7%.
“Employers are trying to coax their employees back into the office, even if not five days a week, and part of the hook is highly amenitized [sic], modern spaces in thriving downtowns,” said Mack Feldman, Vice President with Feldman Equities, a commercial real estate development firm with office properties in Tampa and downtown St. Pete including the First Central Tower, the Castille at Carillon and the Morgan Stanley Tower.
“While St. Pete’s CBD (Central Business District) vacancy is significantly lower than Tampa’s, a lot of Tampa’s vacancy is in newly-built buildings that are quickly filling. Those new buildings are achieving rents in the $50s per square foot range, which is a high watermark that’s helping to push average rents up on the Tampa side across all types of office buildings,” Feldman said. “By contrast, we’ve had very limited new office development in downtown St. Pete. Still, the fact tenants are choosing downtown St. Pete over downtown Tampa tells you a lot about how employers perceive the downtown and its ability to help them attract and retain highly paid employees.”
Another commercial real estate expert, who asked not to be named, also said the downtown St. Pete market is very strong as rates have increased in Class A products by $3 to $5 per square foot in the last year.
Today, the average direct asking price per square foot in St. Pete is $31.78 while Tampa’s is $38.07. The study points out that Class A buildings, specifically in Westshore, have increased asking rates to $45 per square foot.
Although the office inventory in St. Pete is limited, several new projects are underway that will bring more office space into the mix, including Orange Station at the Edge, which is under construction at the old St. Petersburg Police HQ. The project entails constructing residential units, including workforce housing units, commercial space and 50,000 square feet of office space. There is also an adjacent pad of land to the site that could be developed into an office building. Another project is Red Apple’s 46-story tower that’s taking shape at 400 Central Ave. The tower will primarily be used for condos; however, it will include office space.
In Tampa, new Class A office properties such as 1001 Water Street, the SkyCenter One building at Tampa International Airport and Midtown totaled around 208,000 square feet of absorption, as a result of move-ins this quarter. Another 350,000 square feet of space at new office projects will be occupied by the end of this year, according to the report.
With the robust leasing activity on the remaining new construction space, it’s projected that many buildings will be 90% leased by the end of the year.
However, certain submarkets are continuing to suffer. The report indicates that in Tampa submarkets, tenants are vacating space in Class B buildings and buildings in less desirable submarkets. The vacancy is expected to decline over the next three to nine months, especially in new office buildings being delivered, which house most of the vacant space.
The insight report shows the Gateway/Bayside and Interstate I-75/I-4 Corridor submarkets experienced significant tenant move-outs, accounting for 90% of the market’s absorption. These submarkets have struggled over the past 24 months as tenants have more quality office space options to relocate to in the Westshore and Tampa.
“Going into Covid, most owners expected the suburbs to do well and downtowns to suffer. We’ve seen the opposite,” Feldman said. “Commodity product in the suburbs with no walkability or amenities is suffering. The suburbs will come back, especially if we stay in a low supply situation, but the short term may be a rough ride.”