What Makes Tampa Commercial Real Estate Shine: Industries
The state of Florida and Tampa has one overriding major industry that is senior to all other industries. I call it the “population growth industry” 😊.
Florida, in general, has been outstripping the nation’s growth rate for the last 50 years, almost uninterrupted. The only year out of the last 50 years that there was actually a shrinkage in population was during the ‘08/09 recession. That was due to the exodus of mortgage brokers, real estate brokers, spec construction workers, etc. from the state after the real estate crash. Other than that, Tampa has had a steady influx of new residents, and we are the number two city in the state of Florida after Miami.
The state has been growing at an annual growth rate which is double the national population growth. Recently, Florida surpassed New York as the third most populous state in the United States. Employment opportunities have been on the rise as well. Over the last several years Florida has been neck and neck with California and Texas for the number one spot in the state of in terms of job creation. Within Florida, Tampa is the second most populous city in the state of Florida. However, over the last several years, Tampa has actually outstripped Miami for job creation.
The next most important thing to understand in terms of economic drivers is that Tampa is a solid tourist destination, which has been one of the economic mainstays of the region for more than half a century.
One of the primary reasons for that success is the quality of the Tampa Bay beaches. While the East Coast has some beautiful beaches, Tampa bay beaches are rated higher for sunbathers due to the quality of the sand and much lower surf conditions. These lower surf conditions allow young children and families to wade out into the water without being crashed upon.
The best beaches in the contiguous United States are in Florida, and some of the best beaches in the state are located in Tampa Bay. In addition, Tampa is home to Busch Gardens in the Hard Rock Casino, which is the most profitable casino in America.
The historical economic driver for Tampa Bay has been shipping. The Tampa area is the number one port by tonnage in the state of Florida. One of the reasons why Tampa leads the state of Florida in tonnage is that the phosphate industry, which is another historic economic driver, is one of the biggest shipping customers. Phosphate is a key ingredient in fertilizer which has become the new “oil” in recent years. The most famous shipping magnate from Tampa is the Steinbrenner family. Other major shipping companies have headquarters or regional headquarters in the area.
MacDill Air Force Base
MacDill Air Force Base is one of the most important military bases in the country because it is the home to “Central Command”, which is where the Iraq war was fought in the Afghanistan war is continuing to be directed from. In addition, MacDill Air Force Base is home to SOCOM which is the special forces headquarters. The military has made a decision to significantly grow the special forces which benefits MacDill Air Force Base. Many of the well-known four-star generals are based at MacDill Air Force Base.
The circumference of the bay itself around which all this population resides also plays into Tampa’s attractiveness. The city has more waterfront per capita than just about any city in America. Miles and miles of waterfront translate to affordability – especially when compared to high cost of living areas like New York or San Francisco. All Homes on the waterfront in Tampa start at $400-500K. That compares to prices of $2 million or more in the metropolitan New York area.
Employers are attracted to Tampa because of the low cost of housing.
Out of the Ashes of the 2008 Crisis
Affordability is a huge part of the nationwide housing conversation. Tier-1 cities like Seattle, San Francisco, or New York City are having massive problems building enough housing and in many ways are failing to provide adequate housing to residents on a systemic level. Tampa, on the other hand, is thriving in that regard. During the last crisis, Tampa housing prices dropped in half. This price depreciation created a magnet for people to come in and buy houses on the cheap. For the last ten years, Tampa has had a massive influx of people buying these hugely discounted homes.
Starter homes in Tampa Bay can be as cheap as $150,000, which enable employers to hire low-cost workers. This has allowed companies to hire people at relatively modest wages because the affordability factor is so high.
The surge in new hiring has been a real contributing factor to Tampa housing prices, which have finally recovered back to the peaks seen in 2006. Tampa housing is a fraction of what the cost of housing is in places like New York, San Francisco. A homeowner in New York can sell a $1 million home and by the equivalent home in Tampa for $600,000.
Tampa and Florida Tax Benefits
Another area to look out for is the SALT phenomenon. The state and local tax deductibility issue has really been a great boon to the state. We here in Florida refer to the 2017 U.S. tax act as the “Florida Subsidy Act” 😊. The tax situation in the state changed about two years ago when Congress changed the tax regulations that included dramatic tax cuts. In order to pay for all these tax cuts, Congress prevented taxpayers in states like New York and California, from deducting state income taxes from their federal income tax obligations.
Take a place like New York State, where the state income taxes are 8 or 9 percent. Imagine that somebody that’s making a million a year, or a billion dollars a year. The guy making a billion could be paying $80-90 million dollars a year in just state taxes and previously was able to deduct that those taxes from his federal taxes. Now, the limitation is $10,000 and that includes real estate taxes. But if you have a McMansion and your taxes are $30,000, that limitation along with your income tax deduction is still a grand total of $10,000.
As a result of this, within the last year or so, David Tepper, the billionaire hedge fund guy, left the state of New Jersey. When he left the state of New Jersey, he cratered a hole in the New Jersey state budget that they have still been trying to fill in. That’s how big his tax contributions were.
More recently, Carl Icahn, the mega-billionaire out of New York, has declared his Florida residency and more notable or more famous or infamous, depending upon where you are on the political spectrum, Donald Trump also declared his Florida residency – and this is just three famous names, but there are tens of thousands of people in this category moving to the state of Florida. The net migration to Florida is estimated to be 1000 people per day. Tampa has been listed as the number one city in America that moving vans have been transporting to.
This is contributing to more and more of the influx into Florida of high-income consumers. Somebody that’s making $1 million a year or a retiree that’s living on $1 million a year of income, when they sell their $2 million home in New York and buy an $800,000 home here – they’re saving $80,000+ a year in income tax. They can also take $1 million from their house profit and put that in the bank and get interest on it or invest in stocks. Imagine how powerful an impetus that is for people to come into the state of Florida.
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Reticence regarding real estate investments
The financial crisis still resonates with investors, especially when it comes to real estate. Many millennials are entering the housing market for the first time, and they remember the tremendous social upheaval and general atmosphere the last time housing crashed. This reticence is not limited to millennials. Many more experienced investors may have memories of taking significant losses in places like Orlando, Las Vegas, or Scottsdale. Although a degree of concern is warranted with any investment, many of these fears are overblown- primarily due to how fundamentally the market has changed in the last decade or so.
Banking and lending are far more constrained than in the pre-2008 period. You can no longer buy a house with 100 percent financing or 98 percent financing. You’ve got to put a significant down payment on, and you’ve got to demonstrate you have a steady income. People still remember the mania about housing and the collapse in the prices. So they’re saying maybe I shouldn’t buy a home, maybe I’ll just rent. There’s a lot more renting going on this cycle than there was in the previous cycle and a lot less speculative buying and house flipping going on. The point is, most of the problems with the 2008 crisis were caused by out of control lending, NINJA loans, and the like- these systemic mortgage issues are not nearly as much of a problem today.
Construction loans for office buildings, industrial buildings and condominiums are much more difficult to come by than they were in the period leading up to the previous financial crisis.
Historically, the mainstay for the Tampa Bay office market has been the “back-office” user. Tampa is a very cheap place for companies to put in call centers and data entry firms that work in paper processing, word processing, etc. where massive amounts of data are just needed to be punched or processed.
However, Tampa is beginning to see a higher grade of intellectual property coming in, which is life science and tech. The boom in these white-collar positions has the added benefit of bringing a tech savvy group of younger workers. In parts of Tampa Bay, such as in downtown St. Petersburg, we are seeing the beginning of the tech boomlet that emulates places like Southern California.
As Tampa begins to resemble these other markets in employment opportunities and demographics, it is not much of a stretch to assume a similar economic climate. Places like SF and Manhattan recovered very quickly after the recession due to the strength of their tech employment. Tampa has the potential to become just as resistant, which means less risk and more appreciation-based profit for investors.
How Tampa Office Space Compares
Park Tower | Tampa
Tampa has recently been rated as one of the top 10 hottest office markets in the country. Co-Star just released a report on the subject. They looked at job growth, and how that translates to absorption of office space. The more white-collar jobs being produced, the greater the likelihood it’s directly correlated to office space absorption.
Due to the job production in recent years, Tampa has seen an average of approximately 700,000 square feet per annum of office space absorption. Over the next 2 to 3 years, we are expecting new construction to be approximately 1,700,000 ft.², which should keep pace with annual job growth.
In downtown St. Petersburg, we’ve also had a boom in tech companies beginning to move up. If you think about what tech companies want, they have to hire highly creative people. For example, one of the most desirable hires that our tenants need today is for a web designer specializing in graphic design. These creative people are drawn to the incredible lifestyle, which consists of fabulous nearby beaches, over 100 bars and restaurants, a major league baseball team and soccer team, numerous craft beer breweries, art galleries and numerous museums.
What Big Companies Have Moved to Tampa?
There are numerous high-level companies that have set up shop in the Tampa MSA. Amgen has put a major company presence here. Bristol-Myers Squibb, Big Life Science R&D, and Johnson and Johnson all have operations in the region. In addition, we have Jabil Circuits, a household name in the tech industry and one of the leading suppliers to Apple in the Apple iPhone – they have their world headquarters here in Tampa Bay. Tech Data is headquartered in Tampa – another tech company.
The financial services company, Raymond James, is also headquartered in St. Petersburg. Those are just some of the names you would recognize here in the market and many of them are Fortune 500 that either have headquarters here in Tampa or have major regional offices here.
Keep in mind that we refer to St. Petersburg as part of the Tampa Bay Area, is part of our official statistical area, which we call the Tampa St., Petersburg, Clearwater MSA (Metropolitan statistical area). The official MSA now consists of over three million people.
Historically, Tampa has had issues when it comes to housing- fortunately, the city seems to have learned from its mistakes. Thoughtfully managed growth and tightened lending stands have made the area far more resilient to housing and economic shocks than in the past. Tampa real estate offers investors a way to acquire and leverage real estate assets without spending the astronomical sums required to make an entry into sky-high markets like Chicago, Oakland, or Seattle. This same affordability, alongside a diverse employment base and rapidly growing population, lends strength to the argument that Tampa real estate will continue to reach new heights in the future.
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Commercial leases (as opposed to apartment leases) use different methods for how the rent is calculated. The tenant’s chosen field or business oftentimes determines which is the best commercial lease calculation to use for that specific use. Let’s get into it in a bit more detail.