Industrial Market Slowly Turning Around

TAMPA, FL-Tampa Bay’s 59.8-million-sf, 13-submarket industrial real estate area is still setting no records but more tenants are beginning to lease space as property owners drop rents and cut deals daily, according to a new market analysis by Colliers Arnold Real Estate Services Inc.

Q3 vacancies are at 15.04%, down 0.45% from second quarter but still above the 8.98% national average. However, net absorption has improved to a positive 364,743 sf from a negative 532,613 sf in the previous period. But counting sublease space, the vacancy mark shoots up to 16.17%, fractionally lower than 16.74% in the second quarter.

“The industrial market has hopefully hit the bottom of this cycle,” at says Colliers Arnold senior research analyst Jeremy Kral. In the report, he projects the market will pick up strongly by the second or third quarter of 2003.

But he fears the fourth quarter may bring negative absorption again. “The instability of the stock market has paralyzed larger companies that remain reluctant to expand space,” Kral says. “Landlords have been cutting rates for three consecutive quarters while trying to attract new tenants, decreasing the average quoted rental rates 20 cents since the first quarter.”

The average quoted rent is $5.37 per sf, down from $5.46 per sf in the second quarter. “We are finding that while the quoted rates have decreased, concessions such as free rent are still widely available,” Kral says.

Land sales always hold the key to future industrial projects and sales of tracts over five acres are down from prior years in the Tampa Bay market. In Hillsborough County especially, land sales in the first 10 months of this year totaled 140 acres with an average price of $1.75 per sf versus 122 acres priced at an average $1.52 per sf. Sales in 2000 totaled 132 acres compared to 540 acres in 1999.

“Land sales have been largely limited to build-to-suits for the past two years,” Kral says. “Lack of demand rather than oversupply” is the reason.

Additionally, some industrial sites, such as two former business parks in Plant City, FL, changed their land use to residential. “While industrial users/developers will be attracted to the large tracts of fairly inexpensive land, absorption and change of use is reducing that supply,” the Colliers Arnold researcher finds.

Kral projects the Interstate 4 hub will continue to capture demand for super-regional warehouse locations in 2003 and 2004, with the largest users moving into the Central Florida corridor. That means the average size tenant in East Tampa has become smaller.

“Older, less efficient warehouse space within the East Tampa market will require retrofit and division of space, subdividing to compete effectively for smaller tenants,” Kral says. He sees the Gateway and Airport submarkets retaining high occupancy and strong rents because of their limited land supply and other barriers to new construction. “Demand for industrial investment buildings should remain strong throughout 2003l,” Kral predicts.