Tampa Office Investors Target Smaller Buildings
The Tampa office market recorded roughly $480 million in total sales volume over the first six months of 2024. And while the overall office investment trend has been towards smaller buildings trading, a significant portion of year-to-date deal volume can be attributed to the $150 million sale of 100 North, a 42-story office tower at 100 N. Tampa St. in the city’s central business district.
Office sales volume in Tampa during the first half of the year increased from the roughly $266 million that changed hands in the second half of 2023, but was lower compared to the $632 million in office sales that traded in the first half of 2023.
The number of transactions was also down slightly year over year. In the first six months of this year, 207 office properties were traded, compared to 229 over the same period in 2023. The average sale price declined roughly 20% from $3.4 million last year compared to $2.8 million this year. In addition, only seven office properties traded for over $10 million over the first half of this year, compared to 12 over the same time in 2023.
Among the 10 Tampa office properties larger than 50,000 square feet that traded in the first half of this year, three were part of multi-market portfolio trades. That is down from 14 over the first six months of 2023, of which only one building was part of a larger multi-market trade. Overall, the average size of office buildings sold in the first half of 2024 was 13,800 square feet, a more than 20% decline over the average size over the same period in 2023.
These trends could be signs of a few different sales dynamics taking hold in the Tampa market. Sellers are more hesitant to sell at this point in large part due to the disparity in pricing expectations between buyers and sellers. Market participants have indicated that the spread can be as wide as 15%. In fact, some sellers have even taken their assets off the market after bids came in below expectations.
Institutional investors continue to take a very measured approach to purchasing office buildings in Tampa and around the country. A strict lending environment and hesitancy by lenders regarding office properties in general, coupled with high interest rates, make many office deals challenging to pencil out. Private investors and private equity firms have taken advantage of the decreased competition and have had a more prominent role in the buyer pool this year.
Shifting Buyer Pool
The buyer pool for Tampa office space has shifted compared to the first half of last year. Roughly 85% of office properties that have sold this year were purchased by private groups, split nearly evenly between private equity firms and private capital in the first half of 2024, up from 65% over the same period last year. The Brookdale Group, an institutional investor based in Atlanta, was the buyer in the $150 million acquisition of 100 North office tower.
When analyzing sales under $25 million over the first six months of 2024, office users have been willing to pay a premium for office buildings over investors. Users paid $228 per square foot on average compared to investors who paid $180 per square foot. In fact, several users spent more than $500 per square foot in office purchases. For example, PHDermatology purchased the medical office building it occupies along Howard Ave. in April, for $700 per square foot. User sales today typically turn into sale-leaseback opportunities in the next few years.
Sales like the 100 N Tampa and Netpark will likely be the exception and not the norm over the next year or so. Users and private investors, especially at price points below $5 million, are less reliant on the debt markets. As such, those types of buyers will likely continue to fuel much of Tampa’s office transaction volume.
However, Tampa’s overall transaction volume will decline without those large institutional-grade investments. If you were to remove the 100 N Tampa and Netpark sales from the second quarter figures, less than $110 million in office properties were traded in Tampa during the quarter.
(CoStar Analytics | By Michelle Rumore)
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