Tampa Bay architects: High interest rates remain big obstacle

High interest rates will slow down real estate development in Tampa Bay, according to an annual survey of regional architects, often the first sector to begin work on development projects.

But this is Florida. There will be growth: The survey also says Tampa Bay will see "modest" real estate development.

It's "modest" because higher interest rates are having a negative impact on the architecture industry, according to a Friday news release from the regional chapter of the American Institute of Architects. AIA Tampa Bay has 700 members in Hillsborough, Pinellas, Polk, Hernando, Citrus, Sumter and Pasco counties.

The survey found Tampa Bay architects have become a bit concerned about growth since the boom year of 2022.

In the February survey, 64% of the 124 architects surveyed expect demand for architectural services in the Tampa Bay area to increase in 2024. That's an increase of only 5 points from last year's survey response, but 20 points lower than the 2022 prediction.

Relief is not expected. The AIA's Voice of Architecture survey found that architects are not too optimistic about interest rates dropping significantly this year. And 80% of architects think the higher interest rate environment had a negative impact on their business, with 34% indicating that it is a "major negative impact."

If architects are concerned, that augurs poorly for a boom in Tampa Bay development in 2024.

"Architects are experts on gauging the outlook for the future because they are hired early in the development process, with projects often being completed one to three years after an architecture firm begins work," the organization says in its news release.

The environment has led to cost-cutting. The survey found 57% of respondents have cut costs to compensate for higher interest rates.

"Between interest rates, insurance, and plateauing rental rates, it's very difficult to make anything pencil," says Rachael Brown, who leads commercial real estate lending for the Bank of Tampa, in the release. "Developers and investors are in a holding pattern, waiting for rates to come down."

Costs are a factor even as Tampa Bay grows and offers profitable opportunities to developers, one architecture principal says.

"Certainly, the outlook for real estate development and construction is positive," says Angela Hendershot, principal at Rowe Architects and president of AIA Tampa Bay, in the release. "That said, there are plenty of economic challenges that are tempering optimism about the year ahead, including the impact of higher interest rates on costs."

Yet the survey shows some brighter attitudes when compared to last year.

When compared to 2022, before inflation and interest rates took their bites, attitudes have not readjusted. The survey found 81% predict that the Tampa Bay area's development-related economy in 2024 will be "excellent" or "good," higher than last year’s 73%.

But the survey found a mixed bag of responses, mirroring reports about the national economy.

For one, despite some pessimism, 58% of architects estimate that their organization or department will hire more employees in 2024, a slightly higher figure than last year's survey result of 48%. The response indicates employers are still having some challenge finding talent — a post-pandemic symptom also shared with the national economy.

"The construction marketplace in Tampa Bay continues to be busy and the trade contractor workforce is stretched thin," says Josh Bomstein, president of Creative Contractors, one of the Tampa Bay area's top construction firms. "The war for talent is real."

Of the 124 respondents in the survey, 79% of the architects were either principals or managers, AIA says. Most respondents were from Hillsborough County or Pinellas County, though many of the architects in the two counties work on projects throughout the region.