Florida is the only state in the United States that imposes a sales tax on commercial real estate leases, a factor that leaves Florida at a competitive disadvantage in attracting potential tenants.

The state sales tax rate for commercial real estate leases was set at 4.5% as of December 1, 2023.  On June 1, 2024 the state will reduce the sales tax rate on commercial real estate lease payments, which include base rent and additional rent, from 4.5% to 2.0% for payments received for occupancy periods beginning on or after June 1, 2024.

Tax reductions in the sales tax rate have been welcomed by both property owners and potential tenants.

The reduction in sales tax makes Florida’s commercial real estate market more competitive and attractive for businesses looking to establish a presence or expand their operations in the state. By lowering the tax burden on commercial leases, Florida aims to level the playing field and encourage businesses from out of state to consider Florida as a prime location for their operations.

Points to Consider

It’s important to note that the sales tax applies not only to the base rent but also to other payments that tenants must make as a condition of their occupancy. This includes common-area maintenance fees, property taxes, and utilities outlined in the lease agreement.

In addition to the state sales tax, property owners are also required to collect any county-imposed sales surtax on the total rent charged. The amount of this surtax varies by county from 0.5% to 1.5%. For instance, in Hillsborough County, the surtax is 1.5%, which brings the total sales tax rate to 3.5%. In other counties like Pinellas, Polk, Lake, Manatee, Sarasota, and Pasco, the surtax is 1%, resulting in a total sales tax rate of 3.0%. One crucial point to consider is that these sales taxes are not typically included in the rental rates quoted by landlords. This means that commercial tenants need to be aware of and account for these sales taxes when preparing their annual budgets. Failure to do so could result in unexpected financial burdens that negatively impact a tenant’s bottom line.

Moving Forward

While all landlords are required to collect state and local sales taxes and remit them to the state, due to accounting or other errors, this new reduction in local sales taxes may not be reflected in your June 2024 rental invoice.  It is important that starting in June, you review your rental invoice carefully to make sure the sales tax reduction is reflected in your invoice.  Note that rental charges paid on or after June 1,2024 for rental periods prior to June 1, 2024, are subject to the current 4.5% state sales tax plus any local tax.  Rental charges paid prior to June 1, 2024, for rental periods on or after June 1, 2024, are subject to the lower 2% sales tax plus any discretionary local tax.  Therefore, if you prepaid rent and sales taxes prior to June 1, 2024, for rental periods after June 1, 2024, you may be due a sales tax refund.

In conclusion, Florida’s decision to further reduce the sales tax rate on commercial real estate leases to 2%, is a positive development for the state’s commercial real estate market. This change makes Florida more competitive and appealing to businesses considering relocation or expansion. With this additional sales tax reduction, Florida is positioning itself as a top choice for businesses seeking a tax-friendly environment and a strategic location for their operations.

At Mobiliti CRE we focus 100% on representing tenants with 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, flex and industrial Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at pam@mobiliticre.com

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The Tampa Bay region had an unemployment rate of 4.5% in August 2021, down 2.7% from August 2020.  The national unemployment rate was 5.2% in August 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 1.4 million, up 67,600 jobs or 5.1% from a year ago.  Two office using sectors to gain jobs year over year were Financial Activities, up 4,200 new jobs and Professional & Business services adding 21,300 jobs.

Office Market Supply.

Overall office vacancy (includes Class A, B, and C) continued to climb in the third quarter increasing 2.5% year over year ending the quarter at 16.3%.  However, most of the increase in vacancy can be attributed to the 380,000 feet of office space that was completed the third quarter at 1001 Water Street in Downtown Tampa.  In addition, there is still a large amount of sublease space on the market.  Downtown Tampa had a vacancy rate of 17% up 1.6 percent year over year (largely due to Water Street).  Downtown St. Petersburg saw a decrease in vacancy year over year with overall vacancy at just 6%.   Westshore had the highest year-over-year vacancy increasing 5.3% to 17.8%.   Vacancies should decrease in Westshore and Downtown Tampa in 2022 as tenants begin moving into the newly constructed SkyCenter One, Midtown West, and 1001 Water Street.  Recently announced large move-ins include The Aviation Authority, Reliaquest, and Pfizer.

Office Market Demand.  

New Leasing demand in Tampa Bay was up 28.9% from the same period last year.  Year to date over 2.3 million square feet was leased.  The Westshore submarket leads in year-to date absorption with over 140,000 square feet.  Most of the negative absorption took place in the Northwest Tampa submarket.  This submarket has struggled as many tenants took advantage over lower priced submarket space and upgraded to new locations in Westshore and Downtown Tampa.

Pricing. 

Average direct asking rents are for all building classes are down 2.5% year-over-year largely as a result of the repricing of recently delivered new space.  However, Class A and B rents in prime submarkets continued to increase.  Many Class A buildings in Westshore increased asking rates to $42 per square foot.  Average asking rents in Downtown Tampa for Class A space increased to $45.48 per square foot.

Outlook. 

We expect total vacancy to remain relatively flat in the short term now that most of the new office construction has been completed.  Leasing activity has been strong in all of the newly constructed buildings.  The wave of companies relocating to Tampa Bay does not appear to be subsiding post-pandemic and those relocations will continue to put downward pressure on vacancies and upward pressure on pricing.

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 as well as commercial real estate in Tampa.  Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at pam@mobiliticre.com

The post Tampa Bay Office Report Q3 2021 appeared first on Mobiliti CRE.

In addition to financial considerations, landlords also look at the tenant’s industry.   Certain types of tenants like banks, large law firms, and major accounting firms, tend to attract a mix of other good tenants.

A third item that landlords look at is the size of the tenant.  While large tenants are generally attractive, a landlord may not want one tenant to take most of the building, especially if that tenant is in an industry considered to be risky.  The loss of one dominant tenant would severely impact the landlord’s bottom line.

In addition to the criteria listed above, landlords also look at the following:

• Responsiveness
• Occupancy Date
• Parking demands
• Rental history (positive references from current or previous landlords are helpful)
• Will requested tenant improvements be reusable by a subsequent tenant?
• Flexibility with respect to location within the building
• Potential for growth

Before you begin looking at properties, it is very important that you have your financial information in order.  Most landlords will want to see at a minimum the most recent two years of tax returns and a profit and loss statement for the current year.  By getting your financials in order and thinking like a landlord, you can be an attractive commercial real estate tenant.

At Mobiliti CRE we focus 100% on representing tenants with site selection, 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 pam@mobiliticre.com

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More Tenant Related Information

• Tech Companies Relocations to Tampa Soar in 2021
• How to Maximize Tenant Renewals
• 11 Tips for a Successful Real Estate Tour
  
• Is a Sublease Right For You?
• How to Prepare for an Office Move
• Cost Saving Strategies to Reduce Rental Expenses
• How is my office building growing when there’s been no construction?
• Determining How Much Office Space You Need
• How to Avoid Commercial Real Estate Pitfalls
• Self-Storage is Still a Great Commercial Investment
• What is a Letter of Intent and Why Are They Useful?
• Difference Between a Residental and Commercial Real Estate

The post Are You an Attractive Commercial Real Estate Tenant? appeared first on Mobiliti CRE.

According to the Bureau of Labor Statistics, the Tampa Bay region had an unemployment rate of 5.7% in November 2020, up from 2.7% in November 2019. The national rate was 6.7% in November 2020, so Tampa Bay appears to once again be fairing slightly better than the US economy as a whole. Nonagricultural employment in Tampa Bay was 1.35 million, down 56,400 jobs or 4.0% from a year ago. The only three employment sectors that gained jobs year-over-year were Manufacturing, Wholesale Trade and Other Services which collectively added 2,600 new jobs in 2020. Not surprisingly, Leisure and Hospitality had the greatest job losses in 2020 with 27,500 jobs gone seconded by Business and Professional Services which lost 9,000 jobs in 2020.

Office Market Supply.

Overall office vacancy (includes Class A, B and C) increased 3.6% from Q4 2019 and ended the quarter at 14.5%. The increase was due primarily to an increase in sublease space and new construction deliveries. Office space available for sublease increased throughout Tampa Bay to 971,958 square feet. Over 565,000 feet of new office space was delivered in 2020 of which 40% is available for lease. Approximately 1 million additional square feet is scheduled to deliver in 2021 with minimal pre-leasing.

Office Market Demand.

Net absorption, which is the total new square footage leased minus the total square footage of tenants that no longer occupy their suites was negative 579,132 in 2020. This represents a 59% reduction in leasing activity in Tampa Bay compared to 2019. Class A office properties had the most leasing activity as tenants took advantage of leasing concessions to move to higher quality properties.

Pricing.

Average direct asking rents were down 4.3% year-over-year. This is due primarily to reductions in rent on newly constructed properties and properties under construction. Between Midtown Tampa, Water Street Tampa and the Heights, just over 1,000,000 feet of new office space will become available in the first half of 2021. All of this new space combined with a record amount of sublease space is putting downward pressure on direct asking rents. Rates at 1001 Water Street have fallen approximately $10 per square foot to between $47 and $49 a foot including parking. So far overall average asking rates on existing properties have not fallen but landlords are offering more in the way of concessions such as free rent.

Outlook.

Between Midtown Tampa, Water Street Tampa, and the Heights, just over 1,000.000 feet of new office space will become available in the first half of 2021. A large portion of that new space has yet to be pre-leased. That square footage combined with the 971,958 available for sublease is bound to increase vacancy and put downward pressure on rents. So far advertised rates (other than newly constructed and under construction) have not fallen but landlords are offering more in the way of concessions such as free rent.

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 pam@mobiliticre.com
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The time required for a successful move depends on the size of the space required and the complexity of the new space. For an office user with 10,000 or more square feet, it is best to begin the process within 18 months prior to the expiration of the current lease. It is critical to begin the process early enough to maintain leverage in lease negotiations and to be exposed to as many alternatives as possible.  Last week we discussed the importance of reviewing your existing lease prior to doing anything else.  Once you have done that it’s time to assemble the team, the timeline and the budget.

1. Choose a Team Leader and Make them Aware of Management’s Goals. Being the point person on an internal office move can require a substantial time commitment. The team leader should be made aware of this and may need to delegate some of their normal duties to someone else during the search process. In addition, it is imperative that the team leader receives clearly defined goals and instructions from all decision-makers involved. Often the best choice for a team leader is the CFO, general counsel, head of facilities or an office manager.
2. Assemble an External Team. The first step for the team leader should be to interview and hire a real estate broker. The broker can then assist in hiring other professionals such as architects, engineers, and construction managers.
3. Clearly Define the Role and Responsibility of Each Member of the Team. The roles of each team member should be clearly defined, and they should be held accountable.
4. Create a Project Schedule. The team leader, together with assistance from the broker, should create and maintain a project schedule that keeps everyone on track. The project schedule should outline each team member’s duties and should include key deadlines for completion and budgets. Staying on schedule will prevent you from moving too late and having to pay holdover rent or from moving too early and having to pay rent on two locations.
5. Establish a Preliminary Project Budget. The budget should address costs for construction, if any, professional fees, furniture, equipment, moving costs and any other costs not covered by landlord concessions.

Next week we will discuss the process used to determine how much space is needed.

At Mobiliti CRE we focus 100% on representing tenants with office relocations, expansions, contractions, and subleases.  We also assist businesses who are looking to purchase office, medical office, industrial, and retail space.  Reach out to us for assistance at 813-300-2227 or via email at pam@mobiliticre.com Here at Mobiliti CRE we assist both small and large investors as well as owner-occupiers with commercial real estate purchases.  

More Tenant Related Information

• Tampa Bay Commercial Office Market Snapshot
• How to Maximize Tenant Renewals
• Tips for Renegotiating Rent Due to COVID-19
• 5 Things to Ignore on a Virtual Tour
• Cost Saving Strategies to Reduce Rental Expenses

The post Thinking About an Office Move? Do These 5 Things First appeared first on Mobiliti CRE.

Click here for Various Relief Programs Available to Small Businesses

Our advice to all tenants is to continue to pay your rent if you can.  If you can’t pay your rent (and even if you can pay your rent) you should become familiar with all of the federal, state and local loan and grant programs that are available to small businesses.   The Cares Act provides, among other things, forgivable loans under the Paycheck Protection Program.  Some of these funds can be used to pay rent.  Prior to approaching your landlord, you should familiarize yourself with these programs to ensure that your negotiations with the landlord don’t jeopardize any loan forgiveness you may receive through government programs.  Once you have familiarized yourself with the governmental requirements for receiving funding and determined either that you are not eligible or that short term negotiations with the landlord will not adversely affect your rights to governmental funding, try approaching your landlord using the following tips:

• Start early and be completely transparent with the landlord. Don’t wait until you are behind on your rent to reach out.  Have data prepared to demonstrate how COVID-19 has negatively impacted your business.
• Messaging is key. Decide who should contact the landlord.  You may have more success contacting the landlord directly as opposed to having an attorney reach out for you.
• Take into account the type of landlord you are dealing with. Does the landlord have a mortgage on the property?  How financially secure is the landlord?  Are you dealing with a small local owner or a larger sophisticated owner?  This will determine in part how you approach them.
• Start with a short-term request of two to three months of assistance. There is so much economic uncertainty right now that the landlord is unlikely to agree to anything long term.  You can always come back and ask for additional assistance as the situation unfolds.
• Try to negotiate a rent abatement (suspension of rent entirely) or a rent reduction as opposed to a rent deferral that will have to be repaid later. If the best you can get is a deferral, try to postpone repayment by adding an additional term to the end of the lease or by amortizing payments over the remainder of the lease.
• See if your security deposit can be applied to pay rent now. The security deposit could be replenished later when business recovers.

In addition to the above, don’t forget to reach out to your insurance agent to see if you are entitled to any type of insurance coverage.  You may also want to consult your attorney to see if any provisions in the lease can be used as leverage in negotiating with the landlord.

Feel free to reach out to Mobiliti CRE with any questions you may have regarding your lease.  Call or text 813-300-2227 or email pam@mobiliticre.com

No Cost Tenant Representation

Additional Resources:

What’s the Difference Between an Assignment and a Sublease?

Should You Sign a Short-Term or Long-Term Lease in Today’s Market?

Tips for Renegotiating Rent Due to COVID-19

The post Tips for Renegotiating Rent Due to COVID-19 appeared first on Mobiliti CRE.

What is a sale leaseback?

A sale leaseback occurs when a business sells a building that it owns and occupies to an outside investor and simultaneously enters into a long-term lease agreement with that investor/purchaser.

What type of companies and properties are good candidates for a sale leaseback?

• Single tenant properties.
• Most commercial real estate property types (medical, office, retail, and industrial).
• Companies with a healthy balance sheet and long, proven operating history.
• Companies willing to enter into at least a ten-year lease at market rates (longer leases increase value).
• Companies willing to enter into a triple net lease with the tenant responsible for all operating expenses.

What are the benefits of a sale leaseback to the user/seller?

• Converts a non-liquid real estate asset to cash while the user retains control and use of the property.
• Avoids the costs associated with placing conventional debt financing on the real estate.
• Allows the user to effectively depreciate the land because the lease payments cover the use of the land and the building. The lease payments are tax deductible.
• Improves the companies’ debt to equity ratio by removing debt that was associated with the real estate from the companies’ balance sheet and replacing it with cash.

What are the disadvantages of a sale leaseback to the user/seller?

• The user gives up any future property value appreciation.
• The user loses the ability to sell the real estate as part of a subsequent sale of the business.
• The tax impact resulting from the sale may be substantial if the property has been owned for a long period of time.

If you are considering a sale leaseback please reach out to Mobiliti CRE for assistance in valuing the property, structuring the lease and marketing the property.  We can be reached at 813-300-2227 or feel free to email pam@mobiliticre.com.

The post Should your Company Consider a Sale Leaseback to Access Cash? appeared first on Mobiliti CRE.

Assignment.  An assignment of a real estate lease is a complete transfer of the right to be the tenant under the lease.  The third-party assignee becomes the “tenant” under the lease, taking over all of the leased premises, and is substituted for the old tenant. The new commerial real estate tenant pays the rent required under the lease directly to the landlord and is treated as the tenant under the lease for all purposes.  However, the catch is that the assignor tenant, unless released from liability by the landlord, remains liable for the obligations under the lease if the new tenant defaults. The old tenant can be sued by the landlord for back rent and other obligations imposed by the lease if the new tenant fails to pay or perform as required by the lease.  Given that a commercial real estate tenant who assigns a lease remains liable for the default of the new tenant, tenants should try to negotiate an automatic release provision.  Unfortunately, many landlords are unwilling to make this concession. An alternative strategy is to ask the landlord for a release if the proposed new tenant is of similar financial strength and creditworthiness.

Sublease. A sublease is a new lease agreement between the real estate tenant as sublessor and a third party as sublessee for all or a portion of the leased premises. The original commercial real estate lease between the tenant and the landlord remains in place, unaffected by the sublease. This means that the tenant remains liable for monthly rent under the original lease, while collecting rent from the subtenant under the sublease, which may be more, less or the same as the rent due under the main lease.

A sublease can be for less than all of the leased premises, while an assignment that transfers the entire lease must be for all of the premises. A sublease is a more involved transaction, as it requires a full sublease document between the commercial tenant as sublessor and the sublessee.

Reasonable Consent.  The landlord must be reasonable in consenting to the proposed assignment or sublease. Under Florida law a landlord cannot be unreasonable or arbitrary in withholding consent to an assignment or sublease. Nonetheless, it is still better to state in the text of the lease that the landlord will be reasonable.

In drafting an assignment or sublease clause, the tenant’s goal is flexibility. Being able to assign or sublet excess space with minimal interference from the landlord and minimal liability in the event the new tenant defaults can be a tremendous benefit to the tenant as the business climate changes from year to year.

When you need assistance with your commercial  lease in Tampa, FL and surrounding areas contact Pam Pester, Owner and President of Mobiliti CRE.  Mobiliti CRE is an independently owned commercial real estate company specializing in exclusive tenant and buyer representation.

The post What is the Difference Between an Assignment and a Sublease? appeared first on Mobiliti CRE.

There are times the landlord’s agent represents both the landlord and the tenant.  This is called dual agency. Although the agent already has sworn his or her loyalty in writing to represent the landlord as his principal with a fiduciary responsibility to act in the best interests of the landlord, the dual agent then pledges to represent the tenant prospect as agent.  When the landlord’s agent acts as a dual agent, there is always a potential conflict of interest. It is never beneficial to a tenant when an agent represents both sides of the transaction.

A commercial real estate tenant is better served by hiring a tenant representative to represent the tenant exclusively. The exclusive tenant representative will perform a site search of all available properties, filter those buildings meeting the tenant requirements, arrange tours of properties the tenant would like to visit, and negotiate letters of intent to lease space on behalf of the tenant. Finally, the tenant representative assists the tenant in negotiating business points for the lease agreement. As exclusive agent for the tenant, tenant reps provide objective, conflict-free advice.

Although landlord agents work to get the best deal they can for the landlord, tenant reps owe their loyalty and fiduciary responsibility to the tenant. The tenant gets a much better chance of a fair deal when the tenant rep is working on his or her behalf.

In the past landlords had an overwhelming advantage in terms of commercial real estate market information, but with the advent of tenant reps, tenants now have a mechanism to fill the knowledge gap. Tenant reps provide a source of current market data to help level the playing field for the tenant.

Rental rates are currently rising as the economy improves and vacancies decrease.  We expect that rates will continue to increase over the next several years as the economy continues to improve.  There are still opportunities to be had and we are encouraging our clients to review their leases now in order to determine if it makes sense to extend the term of their lease in order to lock in a rate moving forward.  Please feel free to contact us at any time for a free lease analysis. Retrieved from “http://www.articlesbase.com/real-estate-articles/no-cost-for-tenant-rep-2263659.html“

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Check for Restoration Provisions:  Your existing commercial lease will spell out the obligations that relate to the maintenance and/or demolition of your current space.  If the landlord is hoping to reuse parts of your existing space, the lease will contain language designed to minimize the damage caused during your move.  If the landlord is intending to demo the space, the lease might contain language requiring the tenant to pay for the removal of certain items.

Check for Holdover Provisions:  Holdover provisions require the tenant to pay damages to the landlord if the tenant remains in place after the lease term expires.  In general, these damages range from one and one half to double the rent being paid at the expiration of the term.

Review Your Lease Extension Options:  Your lease may contain an option to extend.  If so the terms of the extension are often at “fair market value”.  Having an extension option is important because it can prevent the landlord from leasing your space out from under you if you wish to remain in the space.  You should review your lease well in advance of expiration because options to extend usually require the tenant to give a significant amount of advance notice to the landlord prior to lease expiration.

Review Your Landlord’s Right to Show Your Space:  Your lease may specify that as the expiration approaches, the landlord has the right to show the space to new prospects.  Typically this process starts six to twelve months’ prior to expiration.  Look for provisions that require the landlord to give you notice prior to the time your space will be shown in order to minimize disruption to your business.

If you have any questions regarding leasing commercial real estate in Tampa or St Petersburg, Florida please do not hesitate to reach out to us.  Mobiliti CRE is a leading provider of commercial real estate services specializing 100% in tenant representation.  For assistance contact Pam at (813) 300-3337 or email pam@mobiliticre.com

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