How Pinellas County industrial & office markets are performing
The Tampa Bay economy accelerated over the past year, adding more than 26,200 jobs for an annual growth rate of 1.9 percent. As of February 2019, the unemployment rate in Pinellas County fell by 20 basis points over the past 12 months, to 3.3 percent. Nearly all industrial-related industries saw employment growth. Transportation, warehouses and utilities had the county’s largest job gains, adding more than 1,600 jobs for a job growth rate of 5.3 percent. The region’s pace for new housing and commercial construction projects benefited the industrial market with many existing and new-to-market users taking space to meet consumer demand.
Less than 2 million square feet was vacant in Pinellas County for the last nine consecutive quarters. Availabilities were predominantly located within functionally obsolete buildings, primarily in manufacturing and flex assets. The limited quality space options continued to affect leasing activity in the first quarter with only 124,352 square feet leased, a 9.3 percent year-over-year decrease. Manufacturing made up the bulk of the leasing activity, responsible for 62 percent of the total. Overall absorption totaled 125,250 square feet for the first three months and was attributable to Walmart occupying 123,000 square feet in the Skyway Business Center in St. Petersburg.
The overall triple-net asking rental rate increased by 3.7 percent year-over-year to $8.15 a square foot, which was only the fifth time in Pinellas’ history that overall asking rent was above $8 a square foot. Flex space saw the majority of rental rate gains, increasing 6.1 percent to $11.41 a square foot, marking the second time the asking rate for flex space averaged over $11.00 a square foot in Pinellas County history.
Builders have become creative in finding sites with limited land available that is suitable for distribution centers in Pinellas County. Gateway Commerce Center, a 64,675-square-foot speculative warehouse, was recently completed and has two tenants occupying approximately 30,000 square feet. Over the past decade, the Pinellas industrial market has seen an average of more than 77,300 square feet delivered annually. The majority came in 2017 with 659,976 square feet delivered, the highest number since 1999. Scannell Properties’ 236,976-square-foot built-to-suit facility for FedEx was the predominant completion during that time. Construction in Pinellas County will slow down following this quarter as the county has no industrial properties under construction and limited viable land positions.
• Additions of new large blocks of space to the market should spark greater leasing activity and assist absorption the rest of the year.
• Pinellas County continued to have one of the Tampa Bay region’s lowest industrial overall vacancy rate’s and highest asking rental rates.
Overall rents increased by 8 percent year-over-year to $23.75 a square foot, the highest average asking rate in Pinellas County history. Class-A assets saw an 8.7 percent increase in asking rents to $26.50 a square foot, another Pinellas County record.
Class-A suburban rents rose to $25.16 a square foot, the first time they have averaged more than $25 a square foot. The Gateway/Mid-Pinellas submarket led the county in rental gains in both the overall and Class A markets, up 12.4 percent and 12.8 percent, respectively, to $24.06 a square foot and $26.87 a square foot.
The Central Business District in downtown St. Petersburg experienced impressive rental rate gains as well, increasing 8 percent overall, with Class-A rents increasing 6.9 percent to $30.60 a square foot. Decreasing vacancies, no new construction, as well as continued strong tenant demand, raised confidence for landlords across submarkets and asset classes to increase rents.
The market was significantly tighter throughout most of 2018 but softened because of the consolidation by Transamerica in Carillon toward the end of the year. However, in the first quarter, nearly half of the 132,000 square feet put on the market was leased by Protect My Ride, which will occupy in the middle of this year. The Transamerica building was re-branded earlier this year as a multitenanted building with a new name: 570 Carillon.
Historically, Pinellas County has not been a large office-tenant market but remained attractive to many smaller and midsized high-tech startups and business services firms because of the high amenity factors, strong talent pool and competitive rental rates, compared to other markets in the Tampa Bay area.
While demand pushed asking rents higher, rent levels have not reached a point that warrants speculative construction based on elevated construction costs.
The office market fundamentals in Pinellas County began the year trending positive on persistent tenant demand and upward pressure on rising occupancies. Future tenant interest from expanding technology and business services firms should remain high and is likely to lead the way to more significant growth in the office market’s fundamentals through the end of 2019.
• Office market fundamentals in Pinellas County started 2019 trending positive.
• Tenant interest from expanding technology and business services firms should remain high and lead to more significant leasing.
• Rising rents could push some developers to move forward with new projects.
Numbers are based on first-quarter data. Source: Cushman & Wakefield. ♦