Tampa office investment market slowed slightly in 2018, but activity remained robust
Commercial real estate brokerage firm CBRE Group’s Tampa Office Investment Sales 2018 Year-End Review and Perspective notes a number of trends the market experienced in the past year, including a slight slowdown in activity. In addition to analyzing sales over the previous year, authors Dale Peterson, a senior vice president, and Courtney Snell, a transaction manager, also outline buyer profiles, rental rate gains and absorption and submarket fundamentals. The duo also offer insights on the outlook for 2019.
On 2018 office deals: “The Tampa office investment market experienced a slight slowdown in the level of property sales from 2017 and the lowest total annual volume since 2013 … Sale activity for the year was highlighted by two $100-plus millions deals that represented 39% of the year’s total sales volume.”
On the volume of office transactions last year in the Tampa area: “Twenty-one major Class A and B properties traded in 2018, representing over 4.2 million square feet and over $642 million in consideration. In comparison, over $731 million of similar type assets sold during 2017, thus representing a -12% decline in activity based on total sales volume.”
On 2018’s major office buyers: “Equity funds, operators and private capital firms dominated the market as buyers in 2018, capturing all but two of the year’s transactions.” CBRE identifies Hart Realty Adviser, Lincoln Property Co., Loeb Partners Realty, TriOut Advisory Group, Lingerfelt Commonwealth, Priam Capital and Empire Square Group as major buyers.
On potential investment activity in 2019: “As the Tampa MSA continues to outrank major metros in affordability and low unemployment, investors will continue to respond favorably to the Tampa MSA’s macroeconomic story. Pricing is strong, which will encourage more owners to be sellers in 2019.”
On cap rate movement in 2019: “Rising interest rates may cause movement in cap rates at some point but strong fundamentals, disciplined lending and an abundance of available equity suggest not in the near term.”
The lowest capitalization rate in 2018 for a major office deal in the Tampa region. Lincoln Property Co. completed the $39.35 million purchase of 490 First Ave, in downtown St. Petersburg, from a partnership between Tampa’s Convergent Capital Partners and Denholtz Associates, of New Jersey.
Amount of the largest office sale in the Tampa area in 2018. Starwood Capital Group, of Miami, bought the two-building Urban Centre office complex in the Westshore area from an affiliate of Teachers Insurance and Annuity Association. The deal also ranked highest on a per square foot basis, as well, at $260 per square foot.
Amount of office space absorption through leasing activity that CBRE is predicting for the Tampa area annually between 2019 and 2023. By comparison, Tampa’s MSA experienced an average of 729,000 square feet of positive absorption each year since 2013.
Tampa area’s office vacancy rate, which represents a decline of 750 basis points since 2013. In the past two years alone, the amount of vacant space has dropped by 170 basis points. Class A office space has performed even better, falling to 9.3% at the end of the third quarter of 2018. In 2009, the rate stood at 23.1%. Tampa’s central business district enjoys the lowest vacancy rate in the area, at 7.7%.
Amount of increase in office rental rates in the Tampa area over the past five years. Average full-service rent now stands at $24.75 per square foot. Class A rates during the same period have risen 24%, to $28.40 per square foot.
Amount Class A office rental rates are projected to be in the Tampa area in 2022. CBRE predicts rental rates will grow an additional 17.1% over the next four years, the result of relatively scant new supply and continued steady demand from tenants. Tampa’s central business district commands the highest average rental rate, at $28.97 per square foot.
Amount of new office space completed in the Tampa area through the first three quarters of 2018. By comparison, 1.66 million was absorbed in 2007, the most in the past 12 years. In 2011, just 10,000 square feet of new space was delivered.
Amount of positive office space absorption through leasing activity through the first three quarters of 2018. By comparison, in 2009 a negative 1,087,000 square feet came back on the market vs. net leasing, while in 2014, the market achieved positive absorption of 1,007,000 — the highest level since 2006.
Largest rental rate growth year-over-year as measured over the past 12 years, which occurred in 2006. By comparison, rent rates grew 1.7% in 2018 vs. the year prior.
Source: CBRE Group