Tampa neighborhood continues to be a CRE bright spot

The Westshore Alliance, a nonprofit group of business and community leaders that promotes the development of Tampa’s Westshore business district, held its 21st annual Westshore Development Forum — providing key updates on the area’s office, hotel, retail and other sectors — May 18 at Renaissance Tampa International Plaza Hotel in Tampa.

With economic uncertainty, including the possibility of a mild recession, on the horizon, the event was a more muted affair than past years. Tampa Mayor Jane Castor appeared in person at last year’s forum but was absent on Thursday, instead supplying a prerecorded introduction. Tampa City Council members also skipped the event. 

And yet, good news was hardly in short supply, as keynote speaker Dana Young, president and CEO of Visit Florida, regaled the audience with eye-popping tourism statistics.

Photo by Brian Hartz

“We broke every record that could be broken” in 2022, she says, adding that tourists spent $101 billion in the Sunshine State last year, generating $13.6 billion in tax revenue for Florida’s coffers. “We can thank all these folks who come to our great state, because they are the reason that no one in this room pays state income tax, which is a good thing.”

Businesses in Westshore — the home of Tampa International Airport and entities such as Raymond James Stadium, International Plaza shopping mall, George M. Steinbrenner Field, Hillsborough Community College and a growing number of modern hotels aimed at tourists and business travelers alike — are direct beneficiaries of Florida’s tourism boom.

“We had just under 138 million visitors come to Florida” in 2022, Young notes, “and that’s with international visitation still down 28%.”

International tourism stats can be deceiving, however, without knowing the full context, Young says. Visit Florida’s research has revealed Florida is now the nation’s No. 1 destination for overseas visitors, eclipsing longtime leader New York.

“In 2021, Florida took 44.6% market share,” Young says, “and New York fell down into the low 20s. Think about that: For every person from overseas coming to the United States, almost 45% are coming to Florida. It's incredible. We love that because international visitors spend more and stay twice as long as domestic visitors. These are the folks who we want to come here — give me five international visitors for every 50 spring breakers.”

A look at some of the highlights from the forum, broken down by sector, include:

Office

Highwoods Properties Senior Director of Leasing Lauren Coup provided an update on Westshore’s office space sector. The district’s Class A vacancy rate has declined to 20% as the Covid-19 crisis has subsided, but there's a long way to go before it reaches pre-pandemic levels — and it might never get there, she says. 

“Work from home is definitely a real thing,” Coup says.

The work-from-home trend, she adds, has led to consolidation and contraction in the office sector and a significantly elevated level of sublease space, which Coup refers to as “the elephant in the room” and something that keeps her up at night. She says there’s about 3.2 million square feet of sublease space available across all Tampa submarkets, “and that makes up about 7% of our total inventory.”

Midtown is a huge success, and each year it gets better and better. A lot of these tenants, you won’t find anywhere else in Tampa Bay or even in Florida." –Cushman & Wakefield Managing Director Patrick Berman

But there also has been some big wins. The Midtown Tampa mixed-use development on Westshore’s eastern edge landing the new headquarters of Kforce is one example. When fully built out, Midtown Tampa will offer 822,000 square feet of office space in a coveted live-work-play environment populated by brands such as REI Co-op, Shake Shack and Whole Foods Market.

“In the last couple of years, everything has completely filled at Midtown West, which is a Highwoods property,” Coup says. “We have a lease out and once that lease is signed, we're going to be at 100%.”

Hotel

Preston Reid, managing director of Hodges Ward Elliott, followed Coup with a presentation about Westshore’s lodging market. Much like the office space situation, he says, the district’s hotel operators continue to feel Covid-19’s lingering effects, with corporate, group and international travel still below pre-pandemic levels but steadily improving.

Hotel sales have slowed, Reid says, but the ones that have traded have done so at high values, which speaks to hotels’ continued strength as a hedge against inflation. Rising interest and insurance rates, he explains, are dampening enthusiasm for transactions.

“Inflation, interest rates and insurance premiums have impacted Florida in a negative way,” Reid says.

Revenue per available room, or RevPAR, a key industry metric, is at an all-time high, though, and according to Reid’s research, Tampa Bay is now among the top 10 highest RevPAR markets in the country, catapulting from No. 16 in 2019 to No. 9 last year.

“People are paying 30% more to stay here,” he says.

Reid notes that for the first time in several years, no new hotels are under construction in Westshore, so the district’s muted inventory should help drive up demand and keep RevPAR high.

Retail

Cushman & Wakefield Managing Director Patrick Berman delivered a retail market overview. Retail has undoubtedly been a bright spot for the district over the past few years, driven largely by Midtown Tampa and its attractive mix of popular local and national brands.

“Midtown is a huge success, and each year it gets better and better,” he says. “A lot of these tenants, you won’t find anywhere else in Tampa Bay or even in Florida.”

According to Berman’s findings, Westshore, at $34.36 per square feet, has the highest retail lease rate in the  Tampa Bay region. Moreover, its vacancy rate — just 1.3% — is the lowest in the area, and while rents are 10% higher in Westshore, sales are 40% higher, giving the district the best rent-to-sale ratio in the region.

“You base that on a 50% gross margin,” Berman says. “What that means, in real numbers, is I pay $1 in rent, I get $4 in sales, and that’s $2 gross profit. I give you $1, you give me back $2. That’s a good deal. Repeat that a few times and you're making some money.”

We can thank all these folks who come to our great state, because they are the reason that no one in this room pays state income tax, which is a good thing." –Visit Florida President and CEO Dana Young

Like the hotel market, though, construction of new retail space in Westshore has slowed, Berman notes. That has led to some staggeringly high sale prices for what little inventory exists. For example, a nondescript one-story building at 602 N. Dale Mabry Highway, formerly the home of a sushi restaurant, sold May 5 for $3.5 million, or $781 per square foot. Just up the road, at 609 N. Dale Mabry Highway, a 10,298-square-foot retail center, which is 100% leased, is on the market for $6.78 million, or $658 per square foot.

“The average price per square foot in Tampa Bay is $260; in Hillsborough County, it’s $285,” Berman says. “In Westshore, it’s north of $500.”