Although the Tampa office market continues to struggle with abnormally high vacancy and subdued tenant demand, over the past three months overall vacancy continued to fall, with the marketwide overall vacancy rate declining to 18.9% at the close of the third quarter of 2010. This is a one-tenth of a percentage point decrease from mid-year 2010 and a four-tenths of a percentage point drop from the overall vacancy rate recorded this same time last year.
For complete Florida Real Estate Journal article…..
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This is not promising news for the office market. Or is it?
The state’s unemployment rate for nonagricultural workers rose to 11.7 percent in August from 11.5 percent in July. The jobless rate also rose in the Tampa Bay area last month, rising to 12.6 percent from 12.3 percent in July. The Bay area numbers include Hillsborough, Pinellas, Pasco and Hernando counties.
It wasn’t immediately clear this morning what was behind the rise. It could mean more people are reentering the workforce.
Often during a recession, some long-time unemployed people get discouraged and stop looking for work. They technically drop out of the labor force and are no longer counted in unemployment numbers.
When the economy improves, these “discouraged workers” start looking for work again, reenter the labor force and are counted as unemployed. This can cause the jobless rate to rise even as the economy improves. (Full Story from TBO.com)
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Tampa
Tampa fared the worst in the second quarter posting negative absorption of 296,000 square feet because of closings by major retailers. Small shop leasing helped, however, posting positive absorption of 26,000 square feet.
Despite the net absorption, the vacancy rate in Tampa stands at a relatively low 7.7 percent. Average asking rents fell 3.2 percent to $14.67 per square foot from the first quarter.
Click for the full report at Retail Traffic magazine
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Sublease space, rented property in which the tenant gives up all or a portion of the designated space to a 3rd party, continues to be a hot topic in the commercial real estate market in Tampa. Although absorption rates have stabilized 
somewhat in the Tampa area, there still remains a considerable amount of sublease space in all the submarkets. Last we checked, West Shore had over 500,000 sq feet in available sublease space alone.
There is no question that subleased space can be considerably less expensive than renting outright from the landlord. Owners need to maintain pricing on their properties not only for future negotiations with other tenants, but also for refinancing with the banks. Sublessors, however, do not have the concerns of precedent that extremely low rental rates would create for owners. Sublessors are only concerned with reducing the costs of their current lease commitment.
Here are some examples of deals we have either been involved with or know of in the last year:
| Size |
Location |
Original Lease |
Sublease |
Term Remaining |
Type |
| 2000 sq |
301 Corridor |
$12/sq |
$7/sq |
30 mo. |
Flex – Industrial |
| 5000 sq |
West Shore |
$28/sq |
$15/sq |
24 mo. |
Class A Office |
| 1400 sq |
Downtown – Core |
$20/sq |
$10/sq |
24 mo. |
Class B Office |
| 8000 sq |
Rocky Point |
$30/sq |
$20/sq |
24 mo. |
Class A Office |
We know the primary reason subleasing is attractive….pricing and affordability. But, there is downside risk that should be considered.
- Default by Sublessor – The legal agreement with the owner of the property is with the original tenant. More often than not, the deal is structured so that the sublessor is paying the difference between their rent agreement with the owner and their agreement with the sub-tenant. In the event the sublessor defaults to the owner, the owner will come to the subtenant to pay for the entire lease. In all probability, the sublessor defaults because their business is in financial jeopardy, making the likelihood of financial remedy improbable.
- Chargeback’s/Expensive Provisions – Leases can be very complicated. It has always amazed me the types of poor deals that people negotiate (usually businesses trying to negotiate without the assistance of a good broker or attorney). The Sublessor might try to pass on these disadvantageous terms to the subtenant.
- Term of the Sublease – The vast majority of subleases is short term (less than 30 months). Short terms can be terrific for a start up business or a company that is rapidly expanding. For an established company, however, a short term can mean higher expenses. Moving a company can cost HUGE dollars and these costs should be considered in the analysis of whether a sublease is a good fit or not for any given business.
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The cross-bay twins – Tampa’s Westshore business district and St. Petersburg’s Gateway business district – continue to suffer from unusually high office vacancies.
Westshore is lumbering along with 21.7 percent of its offices unoccupied. Gateway’s vacancy totals 23.4 percent.
More from James Thorner, St Pete Times
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It did not come as much of a surprise when GunnAllen Financial, Inc. finally closed its doors for business today. Regulators had been digging around the firm looking for net capitalization violations after Chairman John Sykes abruptly left at the end of the last year. With Sykes’ exit, the writing was on the wall that the firm’s future was in question and brokers began to leave the firm.
5002 West Waters Av
The real estate story behind GunnAllen is quite interesting. An affiliated entity purchased the building at 5002 West Waters in 2004 for $9.5m and leased the building to GunnAllen. The property had originally been owned by financially troubled Tropical Sportswear and the transaction was considered a distressed asset sale. A parking garage was added to the property and it was sold 2 years later at the top of the market for $7.4m, or $2.1m LESS than the original sale. A new lease agreement with GunnAllen was executed with the new owners.
GunnAllen management believed it would need the 117,000 sq ft property to accommodate its expansion plans. When the stock market imploded, the property became an albatross for the company, whose profits were heavily tied to the market. Management had been attempting to reduce costs associated with the build by either subleasing unused portions of the property or vacating the property entirely.
Regardless of the circumstances, Tampa will now have an estimated 400 additional unemployed people and 117,000 sq feet of office space on the market. The property will be a challenge to market. It is a Class A building, but the surrounding area is really better suited for light industrial or transportation, rather than an office fit for a white shoe law firm. There is a significant common area load on the building making it best suited for a single tenant, unless the price is at a significant discount to factor in the common area charge.
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The retail vacancy rate in Tampa Bay shopping centers has grown to 10.5 percent or enough empty space to fill International Plaza about 10 times.
Yet while retail rents continue declining to an average of about $15 a square foot, down from $16.53 last summer, industry experts think Florida’s retail space glut has peaked, consumer spending is beginning to come back and rents are stabilizing.
Click here for entire story from the St Pete Times….
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The U.S. average apartment vacancy rate was 8 percent and the asking rental rate was $1,026.
Of the other major Florida markets, Miami had the lowest vacancy rate at 5.8 percent as well as the highest asking rental rate at $1,063. Tampa-St. Petersburg had a 10.7 percent vacancy rate and an $827 asking rent and Orlando had a 11.2 percent vacancy rate and an $869 asking rent.
New York-based Reis (Nasdaq: REIS) is a commercial real estate performance information and analysis company.
Copyright 2010 bizjournals.com
Full Article
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Unfortunately, the Tampa Area unemployment rate continues to climb. Until the unemployment rate increases reverses its negative trend, the area commercial real estate vacancy rates will continue to be under pressure.
The Tampa Bay area’s jobless rate jumped half a percentage point to 12.3 percent, making it the most job-challenged major metropolitan area in Florida. The region’s most sluggish county remained Hernando, which saw its unemployment rate rocket to 14.7 percent, up from 14.0 percent the prior month….from the St Pete Times (for complete article)
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Excerpt from the Tampa Bay Business Journal:
Vacancy rates are continuing to rise in the Tampa Bay area’s office market as regional employment is expected to decline by 54,600 jobs by year’s end, states a fourth-quarter report by Marcus & Millichap.
About 2,100 office jobs have been eliminated monthly throughout 2009, dropping overall office employment to a level last seen in 2003, states the report. A resumption of hiring is still several months away.
That means vacancy rates will continue to climb while rental rates decline. (Complete Story)
Commentary: We continue to see sprouts of green on the barren economic landscape right now, but unfortunately, employment and subsequently vacancy is going to continue to be an issue in to the first quarter of 2010, if not further. As has been stated many times in this blog, Tampa, Hillsborough County and the State of Florida have been entirely too reliant on construction and growth with limited thought or planning as to what would happen when the music stopped.
For those interested, we have started a LinkedIn group to discuss the issues at hand. (Click here for the LinkedIn Group)
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