GOOD NEWS, BAD NEWS by Laurel S. McQueen

Office leasing improves. But it still could take 20 years to fill all the vacancies.

LED BY MANATEE AND SARASOTA, the region’s office market emerged from the crater created last quarter. The total quarterly absorption is still modest, but looking back over the last eight quarters since 9/11, third quarter’s activity ranks second best.

Across the region a number of smaller leases was reported. Unfortunately, much of this is intermarket movement as leases expire and companies move to better deals.

The stock of sublease space in the region grew by 59 percent – not because of an actual increase in the market, but because the MADDUX BUSINESS REPORT got a better handle on what’s out there. Previously, only large chunks of space were tracked. Now any sublease space reported is tracked. So, if the full 809,500 sf now reported were added in, the region’s vacancy rate would rise to 19.4 percent.

Looked at another way, it would take nearly 20 years to fill all the vacant space, based on the current 12-month volume.

South Tampa Bay proved the saving grace for the market, accounting for two-thirds the net absorption. The I-75 Corridor through Manatee and Sarasota netted 135,500 sf during the quarter. The newly opened Manatee Memorial Hospital at Lakewood Ranch was responsible for 54,000 sf, while Park Place on Clark Road added another 15,500 sf. Manatee now has the region’s lowest vacancy rate while Sarasota has the region’s second-greatest annual absorption.

Net activity in Hillsborough and Pinellas counties was little more than a wash. Hillsborough, however, did improve by more than a quarter-million sf from last period’s negative to land with a positive 32,840 sf, a modest number for Tampa Bay’s largest office market.

Since the end of 2001, downtown Tampa has endured a cumulative net loss of 397,650 sf – 84 percent at Class A buildings. Asking rents, however, have remained fairly steady with overall rates up $.12 per sf. Effective rents are down, however, as concessions are up, with some properties advertising free rent. This is a growing trend in all the major submarkets.

Westshore squeaked out a modest gain of 63,160 sf, though still reporting a loss in annual volume. Sublease space now being tracked in this market grew 58 percent. If included, the vacancy rate would push to 16.7 percent. Meantime, tracked sublease space along the I-75 Corridor increased by 90 percent, which would raise the vacancy rate to 31.5 percent.

Pinellas activity was a yawner. The Clearwater and north submarket has seen its annual rate in net loss territory for nine consecutive quarters. Countryside, however, finally has reached a positive position with annual absorption of 21,740 sf. Downtown St. Petersburg’s vacancy rate dropped two points because vacant space at First Central Tower had previously been reported as the owner’s space, but it’s sublease. Countywide, Pinellas’ sublease space now being tracked rose 55 percent, which would raise the vacancy rate to 17.4 percent.

Polk County saw some positive activity after three quarters of net losses. But it remains as the only county with an annual volume loss. Its vacancy rate dropped 1.5 points.

Office buildings which have been fully leased for two or more quarters do not appear in the survey charts. All office buildings continue to be updated in the database each quarter. Previous quarterly data is revised as new information is received. Survey charts may include sublease space, which is not included in analysis numbers. For questions regarding the survey, call the MADDUX REPORT research department at 727/321-3225 or email MADDUXResearch@AOL.com.