Tampa Industrial Tenants Face Significant Rent Increases
Asking Rents Up Nearly 70% Since 2019
Asking rents averaged less than $8 per square foot in 2019 and are now above $12.60 per square foot on a triple net basis. Industrial asking rents increased an incredible 68% for the Tampa region since the end of the second quarter of 2019, with several areas surpassing even that. While asking rents are up across the board, the full impact varies depending on the age of the building, location and lease size.
Tenants needing less than 50,000 square feet are facing some of the steepest rent increases, especially near Tampa International Airport. In fact, asking rents for buildings 50,000 square feet or smaller in the Airport area have increased nearly 100% over the past five years. It is also important to note that the Airport area has one of the lowest vacancy rates in Tampa, at just 3.3% as of June. The persistently low vacancy rate has encouraged landlords to continue pushing rates, averaging just below $14 per square foot.
Peter Cecora, senior managing director with JLL, adds, "Across the board, we're seeing rent increases, but it's the smaller tenants that are experiencing the most sticker shock. Typically, these are more local or regional tenants that have a smaller real estate portfolio, and they have not forecasted the rent growth we're seeing in the market. Larger tenants, although they're facing rent increases as well, have budgeted and forecasted for that."
It's not just the cost of real estate that has increased, as operating expenses are up, too, as insurance rates and the cost of utilities have increased. "A few years ago, we weren't really talking about operating expenses with tenants. Now, it's a more common topic of conversation. Tenants are looking at the total cost increases and starting to push back."
Tenants with more significant requirements, over 100,000 square feet, can expect a discount from the market average. For instance, Polyglass USA leased roughly 216,000 square feet at I-4 Midway Logistics in Plant City earlier this year with a starting rate of $7.15 per square foot for three years. The warehouse was completed in 2022 and sat vacant prior to the Polyglass USA lease, likely also contributing to the lower starting rate.
Robyn Hurrell, executive vice president at Colliers International, recently completed a case study highlighting how the increase in rent is impacting real estate decisions. "We were working with a client occupying 75,000 square feet on the East Side. The company has experienced tremendous growth and needed more space, between 150,000 and 200,000 square feet."
"Their in-place rents were around $7.00 per square foot, and comparable spaces within the East Side were leasing 140%+/- above what they were currently paying. Subsequently, the tenant leased 180,000 square feet in Plant City, where there were more economical options that met their real estate needs."
The forecast calls for asking rent growth to moderate over the coming quarters, down to an annual rate of roughly 6% by year-end. This trend has already materialized as the current annual growth rate has declined 300 basis points from the end of 2023 to 9% as of June, in large part due to industrial fundamentals normalizing over the past 12 to 18 months.
Nevertheless, even if rent growth slows more than anticipated, tenants looking to renew leases executed prior to 2020 or even expand due to growth should expect to pay significantly more than their in-place rents for years to come due to the embedded rent growth.
(CoStar Analytics | By Michelle Rumore
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