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Though downtown Tampa’s office market has garnered the bulk of attention of late with plans for the first ground-up development in a generation at Water Street Tampa, a spate of transactions in the Westshore Business District show that investors remain drawn to the suburban location.
Since May, four major sales totaling $160 million have occurred in Westshore, comprising more than 775,000 square feet of space.
The sales have included deals for Concourse Center; Fountain Square II; Westshore 500; and Westshore Center.
Each involve out-of-town investment groups from Miami, Orlando and Durham, N.C., and have renewed interest in plans to add new inventory to the area.
“We bought Concourse Center based on what we see are continuing strong fundamentals and good job growth numbers,” says Elizabeth Madzula, managing director of asset management for North Carolina-based Dilweg Cos.
“We were able to buy the project below replacement cost and we think it has a great location, with easy access to the (Tampa International) airport, downtown Tampa, Pinellas County,” Madzula adds. “There are also a good number of amenities in place, including retail and restaurants.”
Of the major sales, the four-building Concourse Center represents the largest by dollar volume, at $52.5 million.
The deal brings to nine the number of office buildings Dilweg has acquired in the Tampa area in the past three years, totaling 850,000 square feet.
Built between 1982 and 1984 on 12.5 acres on East Frontage Road, Concourse Center features on-site amenities including a café, ample parking and high-speed fiber access.
Like the 294,621-square-foot Concourse Center, which was roughly 90% committed at the time of the sale, each of the highlighted sales in Westshore boast high occupancy and rental rates that have increased over the past four years.
Class A office rental rates in the Westshore submarket range now from $28 per square foot to $34 per square foot, on average.
Fountain Square II was 93.1% leased when it was sold, Westshore 500 was 97% committed, and Westshore Center had tenants in place for 84% of its space.
That limited amount of vacancy, in both the four projects that were sold and the balance of the submarket — combined with a lack of new supply — have allowed landlords to raise office rents in Westshore above $30 per square foot in some cases.
“We’ve seen a fair amount of rent growth this cycle in Westshore, but that’s been fueled, in part, by a limited amount of new supply,” says Rick Brugge, an executive managing director with commercial real estate brokerage firm Cushman & Wakefield, who was involved in both the Concourse Center and Westshore Center trades.
“At the same time, there are good economic dynamics in place,” Brugge adds. “While some of the prices for these properties may also seem high, they’re actually trading at a discount to replacement costs, which is attractive to buyers.”
In many cases, the recent trades have involved 1980s vintage properties — such as Westshore Center and Concourse Center — that have received significant upgrades of late.
But as with many commercial real estate investments, what drew the Westshore buyers to the state’s largest suburban office submarket was considerable, sustained job and population growth over the past five years and a prognosis for future growth in years to come.
“Tampa has had the largest employment growth in Florida over the past three years, and there are a great many Millennials that are moving there,” says James Bernstein, president of Miami-based The Green Cos., which bought the 10-story Westshore 500 office building, at 500 N. Westshore Blvd.
“It’s not the same place it was three- to five-years ago,” Bernstein adds. “Housing affordability is good, and you can buy at a lower price per square foot than in many parts of the state. That all made a compelling case to us. And we just fell in love with the asset we purchased after talking to the tenants. There was a real comfort level.”
Bernstein adds Green Cos. also was buoyed by a planned 70,000-square-foot addition to nearby Westshore Plaza that is expected to add a 14-lane bowling alley and a 650-seat movie theater.
Also on North Westshore, at 1715 N. Westshore Blvd., Miami-based America’s Capital Partners acquired the nine-story Westshore Center just south of Tampa International Airport and the International Plaza Mall, for $52.05 million in June.
At 4925 Independence Parkway, a roughly five-minute drive to Tampa International, a joint venture between Owens Realty Capital, of Orlando, and Galium Capital, of Miami, purchased the Fountain Square II property for $29.4 million.
The four-story, 133,887-square-foot building, which underwent a significant renovation last year, is occupied primarily by CarePlus, ConnectWise and the U.S. government.
Perhaps not surprisingly, the solid fundamentals of occupancy and rental rate growth have also focused attention on new development in Westshore.
Although just one new building has gone vertical to date — the 250,000-square-foot MetWest III in the 32-acre MetWest International corporate park on Boy Scout Boulevard — a handful of others have been fully designed and many will be constructed on a speculative basis, with delivery slated for the end of 2021 or before.
Renaissance Center VII in the 71-acre business park of the same name; Zons Development’s Skyview Plaza; the Hillsborough County Aviation Authority’s Skyview Center; Midtown One in the Midtown Plaza development; and Cousins Properties’ Corporate Center at International Plaza V would collectively add more than 950,000 square feet to the market.
And while rental rates in each of the new buildings would likely exceed $40 per square foot, early signs are good that several of the properties will proceed as planned: MetWest III, for instance, which began construction with 60% of the 10-story building committed, is now fully leased.
Despite the activity that is common to both downtown and Westshore, investors say the two submarkets are distinct and still don’t compete against one another for tenants.
“I don’t see Concourse Center completing against downtown properties,” Dilweg’s Madzula says. “If anything, Westshore is a lower-cost alternative with better parking.”
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