Vacancies continue to plummet while office rental rates skyrocket, creating a tighter market and leaving companies eagerly hunting for Class A space in St. Petersburg.
As companies face limited options and a lack of confidence in inking long-term leases, real estate developers and economic development professionals are concerned about the perception of St. Petersburg.
“In St. Pete, most of the tall buildings are residential and that gets to this market failure,” St. Petersburg Downtown Partnership President Jason Mathis said during a Thursday Public Services and Infrastructure Committee meeting. Mathis was joined by Wendy Giffin of Cushman and Wakefield, Mack Feldman of Feldman Equities, which owns the First Central Tower and the Morgan Stanley tower among others, and JP DuBuque of the St. Petersburg Area Economic Development Corporation.
The discussion is an update from a presentation shown last October on how St. Pete needs more upscale and new offices to become competitive with its peer cities.
Data presented from CoStar shows the Class B and C offices downtown have experienced a steady vacancy rate since 2018; however, more companies desire new Class A office products filled with amenities to the brim and surrounded by development.
“Normally, you would see so much office development because there’s clear demand, but residential is so lucrative,” Mathis said.
“For offices, you need a lease signed three years in advance and companies in our market are not significant enough to have that financing for three years out. The other challenge is you don’t get the return as fast,” he said. “Capital will always flow to areas with the least risk and most reward, and right now that’s market rate residential.”
“A new office space in St. Petersburg hasn’t been built in three decades,” voiced Giffin, one of the most active real estate agents in the market and a senior director at Cushman and Wakefield.
The newest office product will be Orange Station at the Edge, which will have a mix of uses, including 50,000 square feet for offices and residential units – a tactic that could be replicated and deliver a live-work environment.
However, there’s still the looming concern that companies, especially those with a hybrid workforce, don’t want to commit to a traditional lease.
“Feldman’s company has been good in agreeing to build out spec space and taking a risk of shorter term leases,” Giffin said.
“They [companies relocating or expanding[ are bullish about coming here, but they are cautious. One of the niches I’ve seen filling is co-working,” Giffin said, explaining the new-to-market companies are initially attracted to co-working models due to the flexible leases, amenities offered, and the ability to have individual offices and yet have collaborative sections.
“As they grow, we are now starting to see them launch from co-working into long-term leases,” Giffin said. She and DuBuque used Code-X and AdCitrus as examples of the trend.
CitrusAd, an Australian-founded company that helps brands utilize first-party data to make online experiences more tailored to individual shopper habits, recently relocated from the Thrive co-working hub into a 10,000-square-foot office in the 200 Central building. Code-X, a cybersecurity company, is also now leasing 5,000 square feet of office space in one of Fieldman Equities’ buildings.
DuBuque said he has 12 “hot” prospects of companies looking to locate in St. Petersburg. Of those 12, several are considering co-working space. He is working with Giffin on securing 50,000-square-foot office space for one prospect and said there are an additional 20 active prospects with two seeking a space in excess of 40,000 square feet.
“For the last 25 years, the message coming out is that we don’t have any inventory. We are trying to change the perception, but we can’t do anything about the reality,” he said. “If some of the actions put forth here today on commercial spaces and partnerships with the government [in changing zoning, promoting office developments] aren’t taken, we will be a bedroom community from our brother across the street.”
Giffin and others noted the high success Tampa has seen with the rise of Water Street, a $3 billion 56-acre mixed-use development backed by Cascade Investment, and Midtown, a $500 million mixed-use development in the Westshore area of Tampa, that have captured large leases.
Mathis, who also suggested that the city look at high hazard areas along the waterfront as possible office sites (under certain conditions), said Giffin, Feldman and others plan to meet with city staff to walk through proposed changes in the city’s St. Pete 2050 vision plan that can potentially rezone areas and have programming to attract office development.