Roundtable: Commercial Real Estate

Commercial Real Estate ® oundtable:

Commercial real estate in Tampa Bay is expected to remain strong over the long term, despite a near-term cooling as a result of the COVID-19 impact. From online retailers to consolidation, market leaders discuss the trends that are underpinning the industry.

Scott Dobbins Founder & Principal Hybridge Commercial Real Estate Jonathan Levy Co-Founder & Managing Partner Redstone Investments

How has the growth of online retail changed the retail tenant market? It has a™ected our business development pursuits with regard to our retail tenant representation business. There has been a new focus on identifying and working with “non-disruptable” service and food-based retailers and digitally native brands (DNBs). DNBs are retail brands that were originally formed as online retailers. Once they reach a level of success online, many of these brands are raising significant capital in an attempt to go omnichannel. This has resulted in a recent migration of digitally native brands that started online and are now expanding to brick and mortar locations.

How has the strength of the retail commercial real estate market in Tampa trended in the past year? The retail market continues to be very strong here. Demand continues to exceed supply in many of the strongest retail markets throughout Tampa Bay. This continues to drive up rental rates and has limited cap rate decompression for stabilized retail assets.

What is a unique trend that has emerged in the market? One trend we are starting to see is the emergence of what is referred to as ghost restaurants. These are restaurants that choose to occupy commissary or commercial-grade kitchens, and are set up to market and deliver their food exclusively via app-driven delivery services such as Uber Eats, Postmates and Door Dash. The economic incentives to this model are compelling as the occupancy and labor costs are significantly less than a typical restaurant which should drive higher profit margins. Where do you see the most potential in real estate development? There are many pockets of opportunity. Westshore, Downtown, West Tampa and Seminole Heights all have their own success stories. The transition is happening all around the market. On the peripheries, the north part of Hillsborough County and the south part of Pasco County are both exploding with activity. Wesley Chapel is also booming and as a result prices in all those markets are increasing. Downtown and the Westshore Mall have been talked about a lot and is now starting to come to life. A portion of the Westshore Mall is being redeveloped for mixed-use and the Austin Center was just rebranded as Westshore Metro Center. Midtown Tampa is well underway and Armature Works in the Heights District is a huge success. From Kennedy to Columbus, there are lots of opportunities and neighborhoods starting to transition into areas of growth. I think more will start to happen in areas surrounding these projects.

What will keep the growth of the real estate market sustainable? I think the weather conditions in Tampa do much of the work. It’s not necessarily what attracts people to the area but it’s certainly one of the things making people stay. Also, the o©ce rents and taxes are substantially less than other big cities. It’s a major selling point for the Tampa Bay market. We develop and keep our products, holding our properties for the long term. We don’t try to make record-breaking deals, but rather we recognize when a property is a solid investment.

Larry Richey Managing Principal & Florida Market Leader Cushman & Wakefield Christopher Travis Sales Manager Marcus & Millichap

What does the development of multiple oce and mixed-use properties mean for the commercial real estate market in Tampa Bay? The most talked about projects happening in Tampa Bay are in the o©ce and mixed-use sectors. In the Hillsborough County market, we have four mixed-use projects that are all very active. Those four new projects are Water Street Tampa in Downtown, Heights Union just on the northern fringe of Downtown, the Midtown project that is being developed at the intersection of I-275 and Dale Mabry and fourth is the MetWest project in the Westshore District on Boy Scout Boulevard. We are seeing the highest o©ce rents in the history of the Tampa Bay area right now, and it is because we have the strongest demand for o©ce space that we have ever had. This is good news because it means new development and jobs in the commercial real estate sector.

What changes in demand are you seeing in the real estate market? It has been an interesting time, with a lot of consolidation and M&A activity. Our biggest company changes are related to our expansion through the acquisition of three companies in the last few years and about 20 highly productive large teams that came to Cushman & Wakefield from our competitors. We have entered property sectors where we were not active before in Florida and those are self-storage and student housing. We have also expanded our presence in senior housing and in the multifamily space, which has been on fire throughout Florida and will continue to be. Demand for multifamily properties has been high for years now and there is no end in sight. What emerging trends in the regional real estate market could be seen as disruptive? One is capital migration. Around $17 billion has migrated to Florida, the No. 1 destination for capital in the country followed by Texas, at $2 billion. People are leaving states that are not tax friendly and coming to Florida, which is very tax friendly. Because the stock market can go up or down, hard assets are attractive. The returns investors can get in commercial real estate are attractive. People are looking at commercial real estate as a means for retirement, passive income.

Are there any particular trends that you see becoming a potential mistake for investors? Probably one of the biggest mistakes is trying to follow the herd. Investors hear about the upside of multifamily developments and apartments, and want to invest in that, but they are two years late and the prices have already gone up. The best opportunities are found by getting ahead of the pack. Some of the property types to consider are industrial and medical o©ces.

Which types of properties are in the highest demand in the area? Multifamily properties are in high demand, in large part by out-of-area investors. And then retail has remained strong during the real estate market recovery. Everybody was scared about e-commerce, but it only makes up about 14% of the overall market. Retail is going to be just fine, especially retailers like dollar stores, gas stations, and fast-food.