Tampa Bay Economy.
The Tampa Bay region had an unemployment rate of 4.2% in February 2021, down thirty basis points (bps) from January 2021 but up 110 basis points from a year ago. The national unemployment rate was 6.2% in February 2021, so the Tampa Bay region appears to once again be faring better than the US economy as a whole. Nonagricultural employment in Tampa Bay was 1.37 million, down 43,600 jobs or 3.1% from a year ago. The only three employment sectors that gained jobs year-over-year were Financial Activities, Professional & Business Services and Construction which collectively added 5,000 new jobs year over year. Leisure and Hospitality had the greatest job losses since last year with 27,700 jobs gone followed by Education and Health Services which lost 8,200 jobs.
Office Market Supply.
Overall office vacancy (includes Class A, B and C) increased 2% year over year and ended the quarter at 14.6%. Unlike last year when the increase in vacancy was due primarily to an increase in sublease space, this quarter the increase was primarily a result of direct move outs and give backs. The amount of office space available for sublease barely decreased from last quarter and remains fairly stagnant at a record high number (883,482 SF). Approximately 1 million square feet of new office space is scheduled to deliver in 2021 with minimal pre-leasing. There will need to be significant leasing activity in the near future in order to slow or stop increasing vacancy.
Office Market Demand.
Absorption was negative 377,000 square feet which is the third quarter in a row of negative absorption. Negative absorption this quarter was in large part the result of over 20 move outs greater than 10,000 square feet with only a few move ins of the same size. Demand for office space in the first quarter of 2021 doubled from the fourth quarter of 2020 but was still down 68% from the first quarter of 2020 and down 31% from the five-year average for first quarter activity.
Average asking rates leveled off with less than 3% of building owners making any rental rate adjustments in the first quarter. Average direct asking rents are down 2.0% year-over-year largely as a result of the repricing of recently delivered new space and soon-to-be-delivered space that took place in the second quarter of 2020. Since that repricing overall rates have essentially remained flat decreasing only $0.12% since Q42020. However, there have been rate increases in individual submarkets since the last quarter. For example, rates in the St Petersburg CBD increased $0.28 and rates increased $0.06 in Tampa’s CBD.
Expect office market fundamentals to decline further over the next 3 to six months as over a million square feet of new office space is delivered in Hillsborough County with little pre-leasing. Those deliveries combined with the record-high amount of sublease space are bound to further increase vacancy and put downward pressure on rents. However, there is room for optimism. Americans are being vaccinated at a daily rate of 2.5 million people per day and everyone wanting a vaccine should be able to get one by early July. In addition, the Tampa Bay region continues to attract out-of-state companies looking for more cost-effective real estate solutions, no state income taxes, wonderful weather and a favorable business climate.
At Mobiliti CRE we focus 100% on representing tenants with office relocations, expansions, contractions, and subleases throughout Tampa Bay and the entire West Coast of Florida. We also assist businesses that are looking to purchase office, medical office, industrial, and retail space. Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at email@example.com