In media coverage and popular perception, one steady theme has held constant throughout the COVID pandemic: The office market is struggling, perhaps even dying.
But there’s a much different picture emerging in Florida’s office sector, and particularly in the state’s thriving downtown markets: Leasing activity is robust and office values are booming. As the pandemic fades, employers are proving that they want office space.
What’s more, employers want workers to come back to the office. But as employers navigate an intense labor shortage, they know they can’t force their people to return to their cubicles. So instead of threatening to fire workers who want to keep working from home, companies instead are enticing workers into the office by upgrading their spaces.
For office investors, the trend is clear: Yes, the overall office market faces challenges from the rise of work from home. But for owners of properties that are well-located and either new or freshly renovated, demand for space remains strong.
Florida’s economy rebounds
Florida has boomed throughout the pandemic as new arrivals move in from out of state. The Sunshine State’s population grew 1.1% from April 1, 2020, through July 1, 2021, according to the U.S. Census Bureau. That’s in contrast to a national population that was essentially flat during that time. And California’s population shrank by 0.8%, while New York state’s census count contracted by 1.8%.
Florida’s population grew by nearly 180,000 during those 15 months, a pace of nearly 400 people a day. Florida long ago passed New York as the nation’s third most-populous state, after only California and Texas. And the state’s $1 trillion annual economy is the nation’s fourth largest, trailing just California, Texas and New York.
Slowly but surely, Florida has been shedding its old image as a place where retirees in their 70s would move to Florida for a steady diet of card games and early-bird dinners. Today’s in-migration includes retirees, but the more noteworthy shift is the arrival of affluent business owners and professionals in their 40s and 50s.
As the national economy recovers, Florida has been doing quite well. The state’s March unemployment was just 3.3%, near its pre-pandemic levels and below the national level of 3.6%, according to the U.S. Labor Department.
What’s more, job gains have been robust. Florida posted job growth of 5.7% from March 2021 to March 2022, not far behind California’s 6.4% and Texas’ 5.9%.
Investing royalty move downtown
In some cases, the new arrivals to Florida aren’t only moving residences. They’re bringing major companies with them. For instance, Cathie Wood, the queen of tech investing and head of ARK Investment Management, has set up shop in downtown St. Petersburg. Wood is known as one of the largest and earliest investors in Tesla. You could call her the queen of tech investing.
Meanwhile, Jeff Gundlach of DoubleLine Capital was labeled “The New Bond King” by Barron’s. He is in the process of moving his headquarters from Glendale, California, to downtown Tampa. And Pfizer recently took 110,000 square feet of space in downtown Tampa.
A Tale of Two Markets
For decades, Florida’s office market has struck a balance between suburban buildings and downtown space. For tenants who didn’t need to be near the courthouse, outlying locations were considered more desirable.
But that has changed. Downtown Tampa and downtown Saint Petersburg are the two strongest markets within Tampa Bay.
In Tampa, the highly desirable Westshore area and the Tampa central business district are experiencing strong positive absorption, according to a market report by JLL. Reflecting tenant demand for space, a wave of new office construction is in the works for downtown Tampa and Westshore.
It’s not just Tampa where city centers are doing well. Downtowns in Sarasota, West Palm Beach, Fort Lauderdale and Miami also are booming.
However, suburban markets are struggling. JLL reports negative absorption in Tampa’s outlying office markets.
Tenants suddenly are keen on high-rise downtown buildings, and they’re moving away from suburban buildings that are three or four stories tall and characterized by large floor plates and sprawling parking lots.
At our Wells Fargo Center in downtown Tampa, law firms are competing for space to expand in the building. The office tower is 97% leased, so there’s not much space to go around.
One key in today’s office market is investing in amenities. Employees will come back to work only if employers give them a reason.
In our Fort Lauderdale property, we recently signed a 10,000-square-foot tenant, mainly on the basis of the renovations we’re doing to that building. Upgrades include a fitness center, a conference center, a bocce ball play area, a shuffleboard court, a cornhole throwing area, a cocktail party space, a brand-new restaurant and café and shaded parking spaces. All of these goodies are what employers are using to try to entice people back into the office.
A bright future
Barely two years after everyone thought the world was coming to an end, the Florida office market is booming. Rental rates in both downtown Tampa and downtown St. Petersburg are up 10% over the past 12 months.
For an established owner like Feldman Equities, this boom looks to be just the first or second inning of a long game. In a sign of what’s ahead, leases are being signed in the mid-$50s for new construction in downtown Tampa.
The expansion in rates appears sustainable for a number of reasons. Florida’s population boom is likely to continue as professionals from the Northeast and California come to Florida in search of good weather, reasonable taxes and a strong economy.
Tampa is emerging as a tech hub, and the surging in-migration has spurred a sea of new housing, both in the form of luxury condos for wealthy business owners and reasonably affordable apartments for front-line workers. Florida’s housing is certainly a lot less expensive than Manhattan, Los Angeles or San Francisco.
For all of those reasons, the momentum driving both job growth and office demand in Tampa – and the rest of Florida — shows no sign of slowing.