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When Vision Properties acquired the five-building Renaissance Center in Tampa's Westshore business district in February, it also revealed plans to construct significant office space.
In announcing plans for a 111,600-square-foot structure, the New Jersey-based investment firm became one of a half dozen Tampa-area landlords eager to capitalize on shrinking vacancy rates and surging demand for office space with ground-up development.
At the time of its $108 million purchase, however, Vision's plan for a sixth Renaissance building was contingent on significant pre-leasing, which is typical within the industry.
Vision stated that at least 50% of its estimated $25 million building would have to be leased before it would break ground.
But seven months and more than 167,000 square feet of positive, Class A absorption later in Westshore alone, Vision is amending its plan.
It now says it will start work on the new three-story building by the end of the year — on spec — and deliver Renaissance Center VI by January 2018.
By not waiting for tenants to commit and going spec, Vision is expected to be the first developer out of the ground with new office product in the Tampa area.
When completed, Renaissance Center VI also would be the only Class A building in the Tampa area with an excess of 100,000 square feet of contiguous office space, Vision says.
“We think the timing makes a lot of sense now, given where we are with the existing stock of inventory,” says Will Bertolero, a Vision vice president. “Since there's not been any construction, the existing stock has gotten older, and at the same time, contiguous blocks of vacancy of 100,000 square feet and above are extremely hard to find.”
To date, competing suburban developers like Dallas-based Tier REIT and Austin Center owner Redstone Properties, to name two, have outlined plans for new offices in reaction to market trends.
In downtown Tampa, meanwhile, Feldman Equities and Tower Realty Partners are preparing to break ground on a 52-story, $200 million skyscraper on the city's Riverwalk. The pair's Riverwalk Tower would contain more than 200,000 square feet of Class A space.
Elsewhere downtown, Strategic Property Partners, a joint venture between Tampa Bay Lightning owner Jeff Vinik and Microsoft co-founder Bill Gates' Cascade Investments, is designing a 500,000-square-foot office tower as part of its $2 billion Channelside redevelopment.
While vacancies have been whittled down to single digits for Class A properties in Tampa — to roughly 8% at the end of the second quarter, according to research firm CoStar Group — rental rates have failed to rise to a level that warrants new construction.
For that to occur, sustained rents on a full-service basis have to rise to anywhere from $35 per square foot to $40 per square foot, before most lenders will consider financing new space.
Tampa's top tier of office buildings, by comparison, are today quoting around $33 per square foot, but many of those deals include parking or other concessions that shave the actual net rental rate down to $30 per square foot or below.
For most landlords, $30 rents are still only a dot on the proverbial horizon.
Vision, though, says its plan isn't dependent on financing, and it believes that its rental rates — starting at $29.75 per square foot plus utility costs paid by tenants — will be offset by improved efficiency for tenants and lower occupancy costs per employee.
The developer maintains, too, that its new building will offer intangible benefits as well. Think higher employee retention rates courtesy of a raft of in-place amenities such as indoor basketball courts, a 30,000-square-foot cafe and an on-site nature preserve, included when credit card company Capital One Corp. built the complex on 71 acres beginning in 1997.
Today, Capital One and Wellcare Health Plans Inc. fully occupy the 573,000-square-foot Renaissance project.
“One of our competitive advantages, clearly, is that because Renaissance was formerly corporate-owned real estate, there are a lot of bells and whistles attached,” Bertolero says. “We have an amenity package, and structured parking in place that few other suburban office buildings can match.”
Being first out of the ground would almost certainly provide another competitive advantage in a market where employment growth and corporate expansion are forecast for at least the next year.
“It's a very smart move on their part,” says Larry Richey, Cushman & Wakefield's Florida market director and head of the commercial real estate services firm's Tampa office.
“It'll take them 12 to 18 months to construct a new building, but in that time I predict that they'll be able to lease up a significant portion of the space,” he adds. “Some tenants will be attracted to the modern amenities that they'll be able to provide.”
Richey notes, too, that the only Class A office blocks on the market are roughly two decades old.
In addition to Renaissance Center, Vision owns a 15-story building known as Metropolitan Center in East Rutherford, N.J.; a 42-story tower in downtown Charlotte, N.C.; and a 700,000-square-foot office complex in Atlanta on 12 acres known as Wildwood Center, among other properties.
And while developing Renaissance Center VI on spec will be a departure for Vision, company officials say market conditions make the project a compelling one.
“Obviously developing on spec is more risky,” Bertolero says. “But we've already spoken to a number of tenants who've shown significant interest and we've not even broken ground yet. And Tampa is a market that is only going to get better.”
- K.L. McQuaid
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