How Covid changed the office market
By Ashley Thompson & Brad Berzins
General Overview – Florida
In recent years, Florida has proven itself as an ideal place to live, work and play. With no personal income tax, exceptional year-round weather, world-class sports teams and so much more it is no wonder Florida has seen an influx of businesses relocating their headquarters to the sunshine state.
The Covid-19 pandemic altered the course of the world and, with it, the future of commercial real estate as we know it. Employees were sent to work from home in March 2020, expecting a two-week stay-at-home order, which quickly turned into a full year of remote work to varying degrees. In order to prioritize the safety of their workforce, offices across the country shifted gears to rely on technology, Zoom calls and Wi-Fi to keep businesses functioning through these unprecedented times.
Pre-Pandemic Office Market Overview Tampa Bay
The greater Tampa Bay area office market was soaring at an all-time high pre-pandemic. Vacancy rates across the bay area were at record low levels, in the single digits, rental rates were increasing and investors/developers had begun developing Class A office buildings for the first time since the early ’90s. The new developments include the $3 billion Water Street project, in Downtown Tampa, with 2 million square feet of office space planned, the Heights Union, a 50-acre mixed-use project, in Downtown Tampa ,with 300,000 square feet of office space and Midtown Tampa with over 225,000 square feet of office space planned.
In addition to an increase of office space on the horizon, companies were beginning to use office space differently and more efficiently. Many businesses were shifting their workforce to hotel-style desk arrangements, in which companies offer unassigned desks to be used by employees at their will. This allowed companies to lease less square footage and reduce rent costs, while offering employees more flexibility and a variety of desk styles to suit the day’s tasks.
In catering to the Millennial employees, which account for more than 30% of the workforce, office building owners were focusing their capital on creating extensive amenity packages for their buildings, to give their tenant’s strong recruiting tools, including collaborative lounges, state-of-the-art fitness centers, full-service conference rooms and ground-floor retail/restaurant space.
The Impact of the Pandemic
Florida was no exception to the early stay-at-home orders put in place. Businesses were forced to get creative as employees exchanged their 20th floor downtown views of Tampa Bay for their kitchen counter. Firms almost immediately began readjusting their real estate strategies. One of the first changes we saw was a significant increase in available sublet space, as tenants who entered long-term leases were not utilizing their space and were looking to mitigate their remaining rent obligation.
New construction has still chugged along, throughout the pandemic, with some noticeable public hiccups such as WeWork pulling out of a lease they had executed at the Heights Union in Downtown Tampa, at the end of 2020. As of mid-2021, the entirety of Tampa’s new office construction is less than 30% pre-leased.
From a tenant’s perspective, negotiating a lease amidst the pandemic is more favorable as landlords are looking to backfill both direct and shadow vacancies. Landlords who would typically look to sign 5+ year leases are also accepting more short-term leases in order to attempt to stabilize their existing cash flow, which likely would have been impacted by the pandemic.
Overall, the greater Tampa Bay market has experienced an increase in office availability, as to be expected. After appearing to plateau in the first quarter, sublet space was once again on the rise in Q2 2021, adding to the overall year-over-year increase in availability. Tampa is showing signs of emerging from the negative office market impacts of the pandemic, however, as evidenced by exhibiting positive net absorption in the second quarter.
The Future of the Office Market
The Covid-19 pandemic has forced business leaders to focus on exactly what role office space should play, moving forward, in real estate strategies and corporate budgets. While there are reasons why employers will choose to continue the ‘work from home’ and hybrid trends – providing employees with flexibility and decreasing their overhead costs by reducing office space – there are just as many reasons to think it is not sustainable in the long run – lack of face-to-face interactions, less loyal employees with lower retention rates, tougher recruiting and fewer opportunities for employee personal development and mentorship. With the vaccination availability ramping up across the country, it is likely that employers will start having to make informed decisions on their real estate strategies in the coming months.
The good news is that of all cities in the country, the Tampa Bay area likely has one of the most positive outlooks. Over 1,000 people are moving to the area daily, with no signs of slowing, and Tampa Bay is well-positioned to capitalize on the influx of new residents. With over 900,000 square feet of new construction added to the supply in the first six months of 2021, there is an opportunity for Tampa to capture new-to-market firms, something that has not been happening in recent years, due to a lack of new development.
Sarasota Office Market
About an hour south of Tampa Bay, the city of Sarasota has also been booming amidst the global pandemic. Similarly to Tampa, Sarasota has seen a significant increase in residents as well as steady tourism, contrary to the rest of the country.
Sarasota was named by U.S. News & World Report “one of the ten best places to live in the U.S. in 2021-2022” and business leaders, and executives, are relocating to the city at a fast pace. Office market rental rates in Sarasota County increased by 9.6%, year-over-year, in 2020 and vacancy is very low at 9.3%.
ABOUT NAI SKYWAY NATIONAL PARTNERS
NAI Skyway National Partners, a full-service commercial real estate brokerage firm specializing in the sale and leasing of industrial, retail and office properties serving the gulf coast of Florida, was formed in 2020 by a pair of industry veterans – Brad Berzins and Andy Georgelakos.
Principals Brad Berzins, Brandy McAdams and, new hire, Ashley Thompson are spearheading the firm’s respective efforts in the Tampa and Sarasota offices.
The firm recently partnered with Hiffman National, a Chicago-based property management company, to ensure that they offer their property owners institutional level, first in class, property management services. As a result of the affiliation, Hiffman National is opening their Southeast US hub in NAI Skyway’s Tampa office, to continue their Florida and Southeast expansion efforts. ♦