The Tampa Bay area’s office market has hit a sweet spot. From extraordinary year-over-year job growth to record-high rental rates, as well as strong demand from a wide variety of tenants, the signs all point to one thing—the time is finally right for new office development in the market.
Asking rental rates for top-of-market office assets have pushed into the mid-$30s a-square-foot range justifying the cost of new development for the first time post-recession. And now, after careful consideration, a handful of smart players are taking advantage of the market’s favorable conditions. For the first time in more than a decade, the Tampa Bay area is experiencing a wave of office development, with over 730,000 square feet of new office space under construction in Hillsborough County, and much more in the queue.
Projects are being developed within four major mixed-use developments: MetWest, The Heights, Midtown Tampa and Water Street Tampa.
At MetWest, construction is under way on MetWest Three, a 250,000-square-foot, Class-A office building. Owned by MetLife, MetWest is a 32-acre suburban mixed-use project located in the Westshore area, near Tampa International Airport. With the addition of MetWest Three, the project will offer nearly 1 million square feet of Class A office space in four buildings. The development also features retail, hotel and residential components.
At the northern end of downtown, SoHo Capital’s Heights Union is a planned 342,000-square-foot project consisting of two, 150,000-square-foot office buildings plus ground-floor retail and a 1,500-space parking garage. Both office buildings have gone vertical and completion is scheduled for early 2020. The project is part of “The Heights,” a 50-acre mixed-use development featuring a food hall and event space, a 314-unit luxury apartment community, ground-floor retail and a planned boutique hotel.
The Bromley Cos.’ Midtown Tampa project, situated at the eastern border of the Westshore Business District, is strategically positioned to bridge the gap between Westshore and downtown Tampa. Vertical construction on the 22-acre, 1.8 million-square-foot development began in May. The project will feature three Class-A office buildings totaling 750,000 square feet, the first of which is expected to deliver in early 2021, in time for Super Bowl LV. In addition to premium office space, Midtown Tampa will feature luxury apartments by Crescent Communities, a dual-branded Element and Aloft hotel, and an array retail and dining options.
And finally, perhaps the most widely known project of the four is Strategic Property Partners’ Water Street Tampa. The master-planned, mixed-use development promises to transform downtown Tampa with 50 acres of retail, office, residential, hotel, recreational and education space. Although plans were announced in 2016, construction has begun on only a small portion of the project so far.
One area underway is the redevelopment of the former Channelside Bay Plaza, which SPP has rebranded as Sparkman Wharf. The project comprises 180,000 square-feet of loft-style office space slated for completion in the first half of 2020, as well as an outdoor food hall-style space with a biergarten, which opened in late 2018. SPP also announced plans for two traditional office buildings, starting with a 380,000-square-foot project expected to deliver in the second quarter of 2021. How leasing activity progresses in that building will determine when the developer will break ground on the third building, totaling 500,000 square feet.
Although it’s clear that tenant demand for this amount of additional office space currently exists in our market, the big question is whether tenants are willing to pay premium rents to be located in one of these new, mixed-use developments versus one of Tampa’s existing office buildings. Ranging from the low- to mid-$40s, rents at these new projects are considerably higher than what tenants are accustomed to seeing in the Tampa market. Halfway into 2019 however, that doesn’t seem to be a problem. Of the 730,000 square feet under construction, nearly half of it has already been leased—and that only accounts for what has been formally announced.
PricewaterhouseCoopers has pre-leased MetWest Three in its entirety, making it the first of the four projects to achieve full tenant commitment. Heights Union is on track as well, as the first 150,000-square-foot building was 50 percent committed to medical technology company AxoGen by the time developers’ broke ground in the first quarter of 2019. This was followed by a 50,000-square-foot pre-lease by WeWork in the second building, marking the co-working giant’s entry into the Tampa Bay market. DPR, the architect building Heights Union, also has committed to 11,000 square feet in the project.
Midtown Tampa has secured approximately 10 retail tenants, including Amazon-owned Whole Foods and Oprah Winfrey-backed True Foods Kitchen. No office tenants had been announced as of April.
SPP has made a number of exciting hotel, restaurant and residential announcements and reportedly has secured a 10,000-square-foot lease in the office portion of Sparkman Wharf, though no formal announcement has been made. It should be noted, however, that while asking rents for office space at Water Street’s Sparkman Wharf will be comparable to the other projects here, rents for the second and third office buildings within the development will push the bar even further, possibly into the mid- to upper-$50s a square foot.
It’s exciting to think about how these four projects will transform not only Tampa’s office market, but our city as a whole. Construction and leasing progress has been phenomenal so far, and with all the interest these developments are receiving, it’s clear this is only the beginning. ♦
