Real Estate Quarterly: An update on commercial real estate and office market

By Joanne LeBlanc, vice president at Colliers

Office space is not dead. At least not in Tampa. In this market, companies continue to lease office spaces even if they are allowing employees to work a hybrid model and work from home for a portion of the week. 

Rental rates for Class A office properties continue to rise. Having pulled a property, as an example, from the commercial MLS database, within 3 weeks, the property’s rental rate went up $1/square foot. 

The spike in rates is due to demand (the flight to quality continues) and the increase in Operating Expenses. In the span of 5 years, Class A multi-tenant buildings have gone from operating around $10/square foot to now over $16/square foot. 

Herein are topics that clients often have questions about or that may not be initially clear when considering commercial office space.

Rental Rates 

The top rental rates in Westshore and Downtown Tampa are $45-$49/square foot. 

New Construction, such as Midtown, SkyCenter and Water Street, is $60-$66/square foot. 

These are Full-Service lease rates. 

Lease Structures 

There are three types of lease structures: 

Full-Service (FS)
When a quoted rental rate is a Full-Service lease, this means all costs are included: Base Rent, Operating Expenses, the space’s Janitorial service, Water, Electricity, etc. 

Modified Gross (MG)
A Modified Gross quoted rate is Base Rent + Operating Expenses. The Tenant will be responsible for additional costs for the space’s Janitorial service, HVAC maintenance, repairs, and replacement, and separately metered electric. 

Triple Net (NNN)
This is ONLY the Base Rent number. Tenant will be billed separately for all additional costs such as Operating Expenses (also called Common Area Maintenance, or CAM), the space’s Janitorial service, HVAC maintenance, repairs, and replacement, and separately metered electrical costs. 

NOTE: Internet, cabling and phone systems are rarely included. The Tenant will have to contract with their own provider to wire the space and the Tenant will pay their provider, per a separate agreement. Internet is only included at executive suite centers or an already wired sublease space. 

Base Year for Operating Expenses 

In Full-Service Lease structures, Tenants have a Base Year for Operating Expenses that begins the first year of the lease. If in the second year, and beyond, the property’s operating expenses increase, you will be billed your proportionate share of the increase. 

I typically brace my clients for a $0.30/square foot charge in year 2, which may compound each year, for the remainder of the term. 

It is always important to ask for a cap on controllable operating expenses, which can lead to incredible savings.

RSF vs USF 

In multi-tenant properties, there is an add-on factor that is incorporated into the square footage of the quoted size of a space. This factor is areas such as hallways, lobbies, common conference rooms or other amenity spaces and shared restrooms. The size of these areas combined is added up and applied to the size of the vacant spaces. Typically, the add-on factor in the Tampa Bay market is 16%-20%. 

The Landlord takes the usable square footage of a space, adds the add-on factor, and that becomes the size of the available space for which Tenant’s pay rent. 

If the usable square footage of a space is 2,000 square feet, add a 19% add-on factor and the rentable square feet becomes 2,380. 

Keep your eye out if the quoted size says RSF (Rentable Square Feet) or USF (Usable Square Feet) – or ask the agent what the building’s add-on factor is. You pay for this!

Process Timeline

We live in the Amazon era, so people are shocked at how long the commercial real estate process takes. 

If your space is under 5,000 square feet, you can likely get away with finding a space that is close to the layout of the business model you desire. 

If your space is over 5,000 square feet and you expect to customize the layout, you should plan 12 months in advance in order to:

  • tour the market, 
  • get Request for Proposals (RFPs) on the top 3 spaces, 
  • have the architect draw up a test fit of the space, 
  • get preliminary construction bids, 
  • lease proposals from the Landlords, 
  • negotiate, 
  • go to lease on the top property, 
  • lease draft from the attorney, 
  • lease negotiation, 
  • lease signing, 
  • construction drawings + mechanical and engineering plans (MEPs), 
  • three bid process from contractors, 
  • permitting, 
  • buildout, 
  • install furniture, 
  • and finally, receive a certificate of occupancy. 

Tax Reduction on Commercial Leases Effective June 1st, Florida state sales tax on commercial rent decreased by 2.5%. This is part of legislation that was passed, many years ago, to slowly phase out this tax since Florida is the only state that has it. 

The total sales tax rate that Tenants will be charged on commercial rent (state & county) in Hillsborough, 3.5% and Pinellas, 3.0%.

Get Everything
in Writing

It goes without saying, one would think, but get all the negotiation in writing. Even if it is in an email. Even if you think it is a “friends and family” deal. Things change as time elapses throughout the process, and nothing aggravates me, or my clients, more than a re-trade. Protect yourself and your financial interests by getting everything in writing from the start. 

Joanne LeBlanc, Vice President at Colliers, specializes in representing Tenants/Occupiers to find and secure office space in the Tampa Bay market. Joanne has more than 19 years’ of experience. Throughout her tenure she has closed over $300M in transaction volume for local and multi-market clients. Her services also stretch throughout Florida, nationwide and globally, with the assistance of the Colliers worldwide network. Colliers is a $4.5B global commercial real estate firm specializing in leasing, sales, property management, valuation, project management, investment services and more. In Florida, Colliers has 11 locations, with 2 situated locally, one in Tampa and one in Clearwater, for full coverage of Hillsborough, Pinellas, Pasco, Polk and surrounding counties.

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