In the Tampa Bay area, industrial activity remains strong to this point in 2024. According to market research from Colliers, the industrial market closed the first quarter of the year with a vacancy rate below 6 percent.
From 2019 to 2022, leasing activity increased, with some fluctuations between quarters. Meanwhile, 2023 saw more than 12.2 million square feet of renewals, expansions and new leases in the greater Tampa Bay area.
The data backs up what we are seeing as brokers – a high-demand market with positive net absorption. With that, there are also several trends that have emerged in 2024.
1.) A generally competitive but well-balanced market. While the Tampa Bay industrial market is competitive, it’s overall well-balanced — favoring neither the landlord nor tenant in its current state (of course, dependent on size and submarket).
This balance can be attributed to a slowdown in new construction, high occupancy rates, rising rental rates and continued strong demand. However, rates are not rising as quickly as they have been in the past few years, and tenants are selective about space and want to see several options and thoroughly survey the market before executing a deal.
There are also pockets of the market, such as infill space less than 15,000 square feet, where landlords likely have the upper-hand due to high demand of industrial/flex space in that size range.
2.) An uptick in manufacturers exploring the region. Central Florida’s industrial users have predominately been focused around logistics and distribution, given that users in the region have the ability to reach the majority of the state’s population within a same-day trucking route.
Today, more manufacturing users are considering the area and exploring both build-to-suit and existing spaces, primarily because of Florida’s quality of living, pro-business environment and lack of state income tax.
However, it’s yet to be proven if manufacturers execute on these plans. The cost of building out a manufacturing space is exceptionally expensive, especially in today’s economic climate, and many landlords are not offering tenant improvement (TI) allowances at the level that manufacturers need.
3.) An increased emphasis on industrial outdoor storage (IOS). One feature that has garnered increased attention from users in the last year in Tampa Bay is industrial outdoor storage (IOS). Industrial users are looking for two to three acres of land for use as a lay-down yard for materials, overflow trailer parking and/or a place to store or park heavy machinery.
Many users have begun asking our team at Colliers to see properties that include IOS, and for properties that don’t, users are inquiring whether IOS can be added to the property. Developers are aware of this growing demand and are taking it into
consideration, when possible.
4.) An overwhelming sense of existing tenants needing more space. So far this year, we’ve heard many clients say they are outgrowing their existing space and need to expand. This has been the case mostly for users in the 5,000- to 30,000-square-foot range.
However, these tenants face a couple of challenges. One is the limited inventory in the market. Also, many users signed leases in the last three to five years that were far below current market value. While they may want to grow their square footage, rent increases may make it unfeasible if their income has not grown parallel with rental rates.
5. A shift in the lead-time a tenant has before needing the space. Historically, when an industrial tenant needs space in the Tampa Bay market, they start looking three to five months before they want to sign a lease. However, we’re now seeing users of all sizes — including large Fortune 500 companies — tour the market nine to 12 months in advance of when they’re actually needing to occupy the space.
This change in timeline has created a bit of a disconnect with tenants and landlords or developers. When trying to pencil out deals that far in advance, it’s difficult to determine what rental rates will be a year from now.
From the broker’s perspective, we recommend that tenants and landlords find a middle ground. Looking at the trending average rental rate growth in recent years — keeping in mind rates can’t continue increasing at this pace — could help both parties arrive at a comfortable number. Owners can also include in their proposals the option to change the rate prior to executing the lease if the markets change.
6.) An increase in landowners exploring the possibility of selling to industrial developers. For years, landowners in the Tampa Bay market took a “wait and see” approach to selling. Now, many recognize that while they may not get what they were offered a few years ago, it’s a healthy market and it may be a good time to sell.
Many have come out of the woodwork looking to sell, but developers remain cautious. Part of this is due to the lending environment not being what it was a few years ago and the cost of construction remaining high. We have yet to see these deals happen but are watching this trend.
Overall, the Tampa Bay industrial market remains strong. We’re hopeful that the obstacles preventing new industrial space from being built — construction costs, land costs and rental rates — will ease up and new inventory will reinvigorate an already active market and meet the high demand of organizations interested in our region.
— By Robyn Hurrell, SIOR, MCR, executive vice president of Colliers. This article was originally published in the July 2024 issue of Southeast Real Estate Business.