A new normal for Tampa Bay’s office market
Commercial Real Estate Update
It’s nearly impossible to discuss the state of Tampa Bay’s commercial real estate market without addressing the effects of the COVID-19 pandemic, many of which remain unknown.
The silver lining is that most U.S. commercial real estate markets entered this crisis in solid shape and that is especially true of the Tampa Bay area. Our resilient market is a multiple-time survivor of Florida’s perennial boom, and bust, cycles. With each economic downturn, this region rose to new heights and discovered new ways to grow. This time around, we are hopeful the market’s talented workforce, and diverse economic drivers will once again navigate a path to recovery and future growth.
Market on Strong Footing
Tampa Bay’s office market entered this period exceptionally strong. Rents for trophy-class office space, in the first quarter of 2020, reached new heights at $42 per square foot, full service, with the overall market hitting $30.50 per square foot. The market saw asking rental rates increase exponentially over the past five years, up 23%, or 4.6% annually. For Class A assets rent bumps were even more pronounced, up nearly 30%, or 5% annually.
These record-setting levels speak to the strong demand, not only from businesses growing in the region but also from new-to-market tenants drawn to Tampa’s vibrant economy and diversified workforce.
Through the first quarter, the region had a robust pipeline of new office projects, predominantly in downtown Tampa and the Westshore district. We currently have 1.3 million square feet of office space under construction, mostly as part of mixed-use developments. Even with COVID-19, work on all major construction projects including Water Street, Midtown Tampa and Heights Union, continues emphasizing developer and investor confidence in our market’s ability to recover.
It’s also important to note that the Tampa Bay area has maintained a healthy office occupancy rate this cycle, despite new construction that has already come online. The commercial real sector typically enters downturns overbuilt, causing it to lag in the recovery. This cycle, local developers have been far more disciplined and that should make for a speedier recovery as the virus begins to fall back.
Future of the Workplace
We can take some comfort in knowing our market entered this period on a strong footing, which could make for an easier transition as people return to work. Still, there’s no question COVID-19’s impact on the way people interact is posing new challenges to the commercial real estate industry.
Real estate professionals in the Tampa Bay area, and beyond, are confronting concerns about how commercial spaces will need to adapt to COVID-friendly distance requirements. With more than 43 million square feet of office space between Hillsborough and Pinellas counties, we can certainly expect some disruption.
As many companies adapt to a work-from-home model the question becomes, will the need for office space decrease? Maybe for some companies, especially those who have found that certain functions of their business can operate just as successfully remotely.
For most companies, however, remote work is just a part of their overall real estate strategy, not a complete solution. Many commercial tenants might end up needing more space than before, to accomplish new standards for distancing and address health and safety concerns relevant to today’s workplace.
While office users were previously focused on efficiencies, we are likely to see that focus to shift toward wellness, cleanliness, more advanced technology and a greater square footage per employee.
Cushman & Wakefield has developed a prototype design for what this new work environment might look like. It’s called the Six Feet Office and uses innovative thinking to address occupier and investor concerns about a post-pandemic workplace.
The Six Feet Office incorporates concepts like-colored carpet that creates visual boundaries around desks, plexiglass shields in between desks that face each other and office signage that directs walking traffic in a single direction. We may also see an increase in the use of technology to make life more touchless. For example, personal smartphones could provide secure access to buildings, reserve hoteling stations within an open environment and tell elevators which floor to go to.
Whether or not such measures make it to the Tampa Bay area’s workplaces depends on the virus’s path and how quickly the world tackles it. For now, we know one thing for sure: this event will significantly impact the way we work, live and play.
In the Tampa Bay area, and across the world, Cushman & Wakefield is helping commercial real estate occupiers and investors navigate these changes and adjust to a new normal. Learn how to prepare your office to reopen with our Recovery Readiness Guide and explore the best practices and products our experts are developing at cushmanwakefield.com/en/insights/covid-19.
Scott Garlick is the Tampa Bay managing principal for Cushman & Wakefield. He can be reached at [email protected]