How Pinellas County plans to fill the need for more office space

By next spring, Pinellas County could be offering incentives to encourage developers to build new office projects.

Part of the county’s proceeds from the next round of the Penny for Pinellas tax will be used to support office construction, Mike Meidel, director of Pinellas County Economic Development, said at the Pinellas Top Projects and Financing Forum.

Eight-point-three percent of the total take from the tax over the next 10 years — about $16.5 million a year — will help incentivize affordable housing and capital projects, as well as creating more badly-needed office and industrial space.

“We’re still trying to figure out the guidelines and how that will work. It will go to the county commission in December for approval, and we’ll start an application process. By the March, April, May time frame we hope to have notice of funding and the ability to tell developers we have some incentives to help you create some office space,” Meidel said.

While the real estate industry overall is healthy in Pinellas County, there’s a pressing need for more office space, other speakers at the forum said.

“I would say one of the few areas of weakness that I see for Pinellas County is the aging office inventory,” said Brian Alford, director of market analytics for central and west Florida for CoStar Group. “It does create a little bit of a competitive disadvantage. First, there’s no available space on the market, the [vacancy rate] is about as low as it’s going to get, and the space is aging. It’s not modern and it doesn’t have as many amenities as what’s being built now across the bay in Hillsborough County this year.”

The current vacancy rate for office space throughout Pinellas County is 7 percent, historically one of the lowest vacancies CoStar has tracked in the county. Tenant demand is high and the inventory of space is shrinking because some buildings have been demolished, Alford said.

Office building sales volume and prices are strong, and rent growth has been solid, increasing 4 percent or more each year, especially on the eastern side of Pinellas County, in the Gateway area and in downtown St. Petersburg, he said.

“But even in the areas we would consider ‘bad’ on this list — 2.8 percent in south Pinellas, the lowest in the county — it’s still outperforming the national average. So it’s pretty solid rent growth for office,” Alford said.

Although rents are rising, Pinellas rents are still about 50 percent lower than the $45 to $55 per square foot for new offices being built in Tampa, Orlando and other comparable markets.

Developers in Pinellas cannot get enough rent to offset the cost of land and construction costs, so they are not building new office space, Alford said.

CoStar’s list of 45 new projects and major initiatives in Pinellas County includes just one office project — the new headquarters United Insurance Holdings Corp. (Nasdaq: UIHC) plans to build in downtown St. Petersburg.

Related story: First look: UPC Insurance unveils renderings for new headquarters

“There’s clearly pent-up demand … but for us to keep that demand, especially in office and industrial, you have so much being built just across the bay, somehow we have to figure out how to add more inventory to the market,” Alford said.

The Penny for Pinellas funding will help close that gap and help make deals happen, Meidel said. “In order to bring new companies into the area or even expand the ones we’ve got, we’ve got to have space.”

CoStar, which provides commercial real estate information, analytics and an online marketplace, reviewed Pinellas County commercial real estate transactions since Jan. 1, 2018. Here’s an overview of the largest real estate sectors.

Office

Number of transactions: 297

Average sale price: $1.4 million

Median sale price: $455,000

Average price per square foot: $123.70

Median price per square foot $126.32

Industrial

Number of transactions: 223

Average sale price: $1.03 million

Median sale price: $695,000

Average price per square foot: $56.06

Median price per square foot $58.97

General retail

Number of transactions: 489

Average sale price: $1.7 million

Median sale price: $700,000

Average price per square foot: $180.05

Median price per square foot $166.67

Multi-family

Number of transactions: 272

Average sale price: $8.2 million

Median sale price: $822,500

Average price per square foot: $144.10

Median price per square foot $125.62

Hospitality

Number of transactions: 59

Average sale price: $8.4 million

Median sale price: $1.15 million

Average price per square foot: $287.16

Median price per square foot $126.57

Land

Number of transactions: 158

Average sale price: $1.3 million

Median sale price: $540,000

Average price per acre: $464,368

Median price per acre: $487,347