Rocky Bottom

The office market from Tampa to Naples seemed poised for a recovery last year.

Indeed, most areas of the Gulf Coast showed positive absorption in 2010. Absorption, an important gauge of the market's health, is the difference in occupied space between two periods of time. In 2010, office-space absorption had turned positive for the first time since 2007, according to data from CoStar group.

But the trend reversed itself in the first half of 2011, as companies hesitated to commit to leasing more space in light of a potential economic softening.

“It's very bizarre,” says Claire Calzon, managing director of office services with Colliers International in Tampa. She says activity has come in intermittent bursts, primarily from law firms that want to be in downtown Tampa. In fact, Tampa's central business district has been one of the few bright spots in the region with any meaningful absorption.

Across the bay in Pinellas County, a lack of business confidence is keeping some companies from making moves, says Paula Clair Smith, a broker with Commercial Asset Partners Realty in downtown St. Petersburg. She says even the promise of low rents isn't likely to persuade skittish executives.

Smith says she's seeing some activity from certain sectors, such as technology and health care. Another plus: There's not as much sublease space on the market. That's good, because cheap space subleased by shrinking tenants usually depresses rents.

Further south, in the Fort Myers area, brokers report most of the leases signed so far this year are by existing tenants that are either expanding or contracting. Some are moving up to better-quality space for lower rents. “I haven't seen any large new companies entering the market,” says Jim Tamblyn, senior associate with Colliers International in Fort Myers.

The issues affecting business decisions to lease office space have more to do with the larger problems facing the country. “There's too much uncertainty as it relates to the political environment,” says Gary Tasman, executive director of Commercial Property Southwest Florida in Fort Myers. “It's definitely trickling down to Florida and Southwest Florida.”

Tasman calls the current market a “rocky bottom,” where low rents and high vacancies have settled in and aren't spiking in either direction. “There's been very, very little new activity in the market,” he says.

The key to a healthy office market is job creation, and so far the employment picture hasn't been bright. Every metro area of the Gulf Coast lost employment over the past year except the Tampa Bay metro area, which saw a modest gain of 10,800 jobs in the year ending July 31, according to state trackers.

While vacancies are generally high, rents are low and absorptions are negative, there are pockets of strength such as downtown Tampa. “Law firms are in an expansion mode,” says Calzon.

The same is true in downtown Fort Myers, where government agencies have been gobbling up additional space. The vacancy rate in the city of Fort Myers, which includes the central business district, is about 15% compared with more suburban markets like Bonita Springs in south Lee County, with nearly 26% of office space vacant, according to CoStar.

Despite the uncertainty, the downturn is setting the stage for the recovery, market observers say. Housing is affordable, office-space rents have fallen, the governor and the state Legislature are setting a business-friendly tone and population projections remain positive.

“The way I'm running right now is much more positive in the second half of the year than the first half,” says Calzon. “We will improve and it won't take as long.”