Most Tampa Bay-area businesses look forward to 2012 with more cause for optimism than they had heading into 2011. In prior quarters, the positive direction of the market was largely anecdotal. Over the last few months, though, tangible signs of broad-based improvement have emerged, suggesting that the obstacles to a stronger recovery may be weakening. Hiring activity has spread from a narrow set of countercyclical sectors such as healthcare and education to a broader group of industries such as hospitality and tourism, as well as professional/business services.
Housing sales have started to pick up and hotel occupancy rates have increased as business travel and tourism rebound. The rate of growth still falls well short of its heady pace during the 1990s and the post-dot.com years between 2003 and 2007, yet 2011 brought clear signs of forward movement. The resurgence of cost-driven relocations of major businesses to Tampa Bay, combined with significant expansions by locally based firms, has been particularly encouraging.
The headlines have been dominated not only by news of firms that are deciding to move to Tampa Bay from other cities, but also of existing companies that weathered the storm of the Great Recession and are moving forward with substantial investments in their staff and infrastructure. It has been a long ride to get to the point where the economy finally seems to be gaining traction but with continued perseverance, and as long as a major shock to the national and global economy is avoided, the next year should bring additional forward movement.
“Now that we have seen three straight quarters of positive statistical leasing activity, albeit minimal, one cannot deny the upward trend of the Tampa Bay office market,” says Cheri M. O'Neil, senior vice president and branch manager of Studley’s Tampa office.
Office-using employment in Tampa Bay also appears to be gaining some momentum. It rose during every month except for March in 2011 – distinguishing Tampa Bay as one of the few major U.S. metros with such consistency over the course of the year. As of November, the region had recovered 27.7 percent of the 50,646 office-using jobs lost during the recession, just below the U.S. recovery rate of 29.9 percent. A recent report highlighting metros with the highest job growth rates during the summer, compiled by Headlight LLC, ranked Tampa Bay third out of 46 metros. This growth appears likely to carry into 2012. According to the most recent Manpower Employment Outlook Survey, the percentage of area employers who expect to expand payroll in the first quarter of 2012 – 18 percent – exceeds the 6 percent that anticipate layoffs.
The office market parallels the clear improvement in the local economy. Class A deal volume totaled 2.0 msf in 2011, a 19.3 percent jump from the 1.6 msf leased in 2010. More importantly, leasing activity has become more fluid, with fewer renewals and more relocations. The increase in the number of deals involving expansions is also encouraging. Relatively consistent leasing, particularly in the last two quarters, is finally making a dent in the region’s excess supply. Landlords who have been sitting on significant blocks of vacant space, in some cases for several years, finally made some headway in plugging these holes as tenants became more aggressive over the course of the year. Tampa Bay’s Class A availability rate dropped by 2.5 pp from an even 26 percent at year-end 2010 to 23.5 percent at year-end 2011.
Wages and benefits, and real estate – in that order – are typically the top two expenditures for most companies. From a value perspective, Tampa Bay is very prominent on the radar screen of companies that are making site selections with these two expenditures in mind. The market’s appealing mix of low costs and a highly skilled labor make it a value play in comparison to much more expensive markets such as New York City and Los Angeles and even Miami, Atlanta and Raleigh. Of note, the companies that chose Tampa Bay in the fourth quarter, bringing with them highly skilled and high-paying jobs, were primarily in the healthcare sector. This will help the region attract other high-value companies with a similar caliber of positions.
The healthcare sector provided a critical steady source of leasing and development activity during the recession. This is hardly a surprise, since healthcare together with education registered the most consistent hiring during the recession and in this nascent recovery. Tampa Bay developers deciding what type of product to build should take note of this trend – these sectors are expected to continue to experience above-average growth in the coming years. Healthcare and medical-related firms remained very active as the year ended, accounting for many of the top leases in the fourth quarter.
In the largest deal of the quarter, Medco Health Solutions completed a 143,274-square-foot renewal at Netpark in Northeast Hillsborough. Although hospitals and schools generally do not absorb much office space, their extensive growth has fueled demand for administrative and support offices. These institutions are also finding that consolidating multiple sites is a way to capitalize on long-term savings. In one of the largest leases of 2011, Moffitt Cancer Center signed for 128,759 square feet at Intellicenter One in Telecom Park. The Class A facility, which is less than four miles from Moffitt’s main campus, will serve as Moffitt’s new location for its business and administrative support functions. According to Moffitt, the move is a part of its strategic plan to increase operational efficiency across its real estate portfolio in order to better serve patients and free up space at its main campus for mission-critical functions.
Although the healthcare sector has generally expanded, new healthcare legislation, administrative oversight and falling profit margins are increasing the pressure on healthcare providers to reduce costs. Many such providers are consequently moving their back office and support functions to lower-cost markets such as Tampa Bay. In October, IRX Therapeutics announced that it would move from New York to St. Petersburg by the end of 2011. The company, which develops therapies to treat cancer and infectious diseases, said it would staff more than 280 positions over the next five years with an estimated minimum average annual wage of $90,000. Florida awarded IRX $600,000 from its Innovation Incentive Fund, while Pinellas County and the City of St. Petersburg granted credits of $275,000 each.
The fourth quarter brought other major announcements including AmeriLife’s lease of the entirety of Prestige Place II in Clearwater. The company is relocating its current headquarters from less than two miles away and it plans to expand its employee base in the new 70,706-square-foot property in March 2012.
Home health benefits management firm CareCentrix Inc., based in Hartford, Connecticut, opened its second Tampa Bay-area facility at Westlake Corporate Center in the Northwest Tampa submarket. CareCentrix said that it selected Tampa as a market for expansion due to the region’s experienced healthcare workforce, proximity to key customers and incentives provided by state and county agencies.
Similar incentives have played a role in other firms’ recent decisions to expand in the area. Marketing and customer contact company OneTouch Direct announced that it would create 700 additional jobs at its two operations centers located near the Tampa International Airport. Workforce Florida provided OneTouch Direct with funds to help train the new employees. OneTouch Direct has experienced exceptional growth – it opened its doors in Tampa in 1998 with only 25 employees and the 700 new hires will bring its workforce to nearly 2,000 people.
Another company experiencing extraordinary growth, tech firm ConnectWise, recently signed a 10-year, 50,000-square-foot lease in Independence Park I in Westshore. The company, which operates in a growing niche in the tech sector, professional service automation (PSA) software, has been adding about four people per week in the last several months. The lease will fill about half of the 113,000-square-foot building, vacant since JPMorgan Chase vacated the entire property in 2006. Connectwise will join Comprehensive Health Management, which signed a 63,000-square-foot lease at Independence Park I lease during the quarter.
Looking Forward
Although the office market is finally headed in the right direction, it has a long road ahead of it before it will regain the stability of the pre-recession period. Tampa Bay ended 2011 with 5.5 msf of Class A space for lease, 139 percent more than the 2.3 msf available five years ago, in the fourth quarter of 2006.
Most landlords remain eager to secure cash flow, particularly those who are trying to arrange refinancing or a sale, and terms should continue to be favorable for the majority of tenants. However, larger tenants looking for space in the highest-caliber buildings are encountering greater challenges as landlords with these bigger blocks are starting to pull back on concessions or stand firm on asking rents. Smaller and mid-sized tenants still have a wide range of opportunities to consider, although landlords’ incentives have begun to shrink for them, as well. Fortunately, in the broader sense, while the national economic outlook continues to shape up and commercial real estate markets once again begin to tighten, the prognosis for Tampa Bay is clearly healthier than for many other cities.
O'Neil says, “Tampa Bay is poised for growth and is gaining national attention with our competitive market rates, availability of highly educated and skilled labor, abundance of affordable housing, no state income tax, strong local/state economic development incentives and plenty of sunshine.”
— Studley