Once bypassed by national developers and investors for larger, metropolitan cities like Miami, the real estate community is now realizing what locals have known for years: Tampa is trending. Tampa Bay’s recognition as one of the country’s top places to live has trickled into the region’s office market, which as of the first quarter of the year, has continued to reap the benefits.
While some credit the Tom Brady effect to Tampa’s rise into the national spotlight, the Tampa Bay region is seeing growing demand in other economic sectors beyond sports, including housing, business and leisure. In fact, Time Magazine just featured Tampa as one of only four U.S. cities in its highly coveted 2023 list of the “World’s Greatest Places.”
Flurry of activity to start 2023
For the first time in five quarters, the Tampa Bay office market recorded positive absorption of more than 55,000 square feet thanks to more companies moving into space rather than vacating it, JLL’s first-quarter Office Insight Report for 2023 shows.
This can be largely attributed to Reliaquest’s move into its 140,000-square-foot headquarters located at Thousand & One Water Street, where it is currently occupying 120,000 square feet, and which made up the lion’s share of positive absorption for the quarter. Two full floors in the same building were also taken by another single tenant this quarter, leaving only one full floor available.
The office market also experienced a slight increase in rental rates and a drop in direct vacancy, additional signs of the momentum the region’s office market is experiencing.
Interestingly, the volume of leases signed in the first quarter of this year surpassed fourth-quarter 2022 by 30 percent. This goes against the expected trend where the first quarter tends to lag, and the fourth quarter sees a surge in closings before year-end. It is also refreshing to see first-quarter 2023 activity exceeding first-quarter 2020 — the final quarter recorded before the COVID-19 pandemic.
From tours with potential clients to proposals drafted and leases signed, overall, this level of activity in the region’s office market can largely be attributed to users looking at and taking space in better buildings that are more highly amenitized and located in more appealing submarkets.
Flight to quality continues
As companies reevaluate their office space needs post-pandemic, the ongoing story surrounding the Tampa Bay office market has been an increase in hybrid work options and the conspicuous flight to quality as well-located, amenity-rich, Class A and trophy office buildings continue to be the top choice for companies looking to relocate or move into the market. The beneficiaries of this trend have chiefly been the desirable Westshore submarket and the Central Business Districts (CBD) of Tampa Bay and St. Petersburg, where office space demand is expected to remain elevated throughout the remainder of the year.
On average, vacancy rates in suburban submarkets are nearly double that of the Tampa CBD submarket. We expect to see additional sublease space come on line in East Tampa, while new-to-market and existing companies gravitate to areas with newer and more high-quality office space options.
Despite the higher rental rates in these office buildings, a growing number of companies are leveraging their location and amenities to lure the workforce (existing employees and new hires) back into the physical office environment. Employers must think beyond the walls of their own office space and extend the work experience to include an attractive and amenity-rich office building surrounded by even more amenities within walking distance.
Supply and demand
As demand for new product increases, spill-over into surrounding neighborhoods is expected where developers are planning mixed-use developments as opposed to standalone office buildings. Companies have an increased interest in taking up office space in vibrant areas active with live-work-play components such as dining, shopping, fitness and entertainment, as well as superb pedestrian connectivity and closer proximity to the employment base.
This is most evident with the upcoming Midtown East development, which once on line in the second quarter will have a positive effect on rental rates that have remained constant over the past few quarters due to a lack of new construction. And with additional projects featuring some kind of office component planned — from Gas Worx in Tampa’s historic Ybor City to Red Apple’s The Residences at 400 Central in downtown St. Petersburg — confidence in the downtown markets is at an all-time high.
If the first quarter of 2023 is any indication as to how the Tampa Bay office market will perform the remainder of the year, the present and future are promising for one of Florida’s most sought-after business and lifestyle destinations.
— By Jim Moler, Executive Vice President, and Deana Beer, Senior Vice President, JLL’s Tampa office. JLL team members Lauren Crawford and Emily Clesen also contributed to this article. This column was originally published in the April 2023 issue of Southeast Real Estate Business.