New Downtown

CBRE's Anne-Marie Ayers has been leasing Fifth Third Center in downtown Tampa for more than 14 years. Ayers quickly ramped up the occupancy rate from 72% to an average of 93% to 99% occupancy through three owners.

Despite her success, Ayers is surprised by what's happening in Tampa's downtown real estate market. For the first time, downtown is starting to outperform the Tampa-area market in both rent growth and occupancy levels. Over the next five years, CBRE econometric advisers expect compounded growth rates to be 33.3%. “Where are you going to get those returns anywhere else?” she says. “That's why the money is following us, and following these deals.”

At the end of July, Fifth Third Center was the first building to sell downtown “in many many years,” Ayers says. The new owner, Atlanta-based Fairlead Commercial Real Estate, bought the 19-floor, 281,072-square-foot office tower for $47 million. The real estate investment company is buying up properties in promising secondary markets showing good macroeconomics. Tampa's downtown fits the mold perfectly, according to Fairlead President Jeff Shaw.

Downtown Tampa is seeing “the highest rental rates and lowest vacancy numbers in 20 years, and there's not a lot of new buildings,” Shaw says. “Companies are looking for quality real estate and they don't want the prices, or wait.”

According to Ayers, Class A vacancies downtown are less than 8%. Vacancies in the Tampa office market shrunk 610 basis points from 23% in the second quarter of 2010, to 17% today, she adds. Downtown vacancy numbers are down 710 basis points over the same period and downtown rents are up 8% since 2011.

In addition to promising occupancy trends and increasing rates, Fairlead was attracted to downtown's expansion with hospitality projects, new hotels such as Meridian and Aloft, residential growth, and emerging retail projects, Shaw says. He credits Mayor Bob Buckhorn for making downtown “a fun and cool place to be.”

Ayers agrees the mayor has had a lot to do with it. “He's on fire and that is attractive to people; they buy into it,” she says. “Our elected officials, they need to drink the Kool-Aid, too because as hard as this was to get this going, it could very quickly slow down if you don't continue to push and not become complacent.”

It's a trend that Shaw says is happening across the country, where gateway cities like Atlanta are starting to get attention from bigger funds, as cities like New York and San Francisco have become too expensive. Next up are the smaller cities and micromarkets, he says. Fairlead is concentrating investments in Atlanta, Charlotte, Raleigh, Tampa, Jacksonville, Orlando, San Antonio, Houston and Dallas.

In the last eight weeks, Fairlead, which opened in 2012, acquired more than $100 million in office space. It expects to deploy another $400 million through its current fund, and is working on raising a second fund, Shaw says.

“There's a resurgence in downtowns across the country,” Ayers says, “because people want an urban environment where they can live, work and play.” Ayers worked with CBRE colleagues Dale Peterson and Courtney Decker to market and sell Fifth Third Center on behalf of Terrace Tower Tampa LLC, which purchased the building for $52 million in 2005. Since, the team has helped list Tampa City Center, which is set to close next month, and it's working on launching Wells Fargo Center downtown next.

“I would say that what's happening in downtown is actually not a trend, it's an inflection point,” Ayers says. “An inflection point is when something happens and it never goes back again.”

Ayers says her main challenge is to persuade people to take a second look at downtown. Some older generations only see it as a hassle, with one-way streets, no place to park, and no reason other than work to cross the river. But revitalization efforts have significantly improved the area, Ayers insists. “People need to come back and see the new downtown.”