It’s not as cheap or easy to get no-frills office space as it used to be in St. Petersburg.
Vacancy rates are falling and rents are rising for Class B and Class C office space, both downtown and in the Gateway area in northeast St. Petersburg.
That’s because more than 90 percent of the top-of-the-line office space downtown is occupied, and 95 percent of the most attractive office space in Gateway is filled, according to statistics presented at the State of the St. Petersburg Economy event on Wednesday. That’s having an impact on more utilitarian and older office properties, said Alan DeLisle, city development administrator.
“Price points are going up considerably and vacancy rates are down considerably because these properties are being targeted by developers to redevelop,” DeLisle said.
Office space is key as St. Petersburg officials work to attract new businesses and help existing ones grow. About 313,000 square feet of new office space is planned at four projects downtown:
- United Insurance Holding Corp. (Nasdaq: UIHC), or UPC Insurance, headquarters: 150,000 square feet
- Old police headquarters redevelopment: 100,000 square feet
- DeNunzio Group mixed-use development: 40,000 square feet
- Red Apple Real Estate mixed-use development: 23,000 square feet
None of those projects have broken ground yet. They all are at least a couple of years from completion.
City projections indicate that likely won’t be enough to keep up with the demand. Under a “moderate growth” scenario, St. Petersburg will need 78,500 square feet of new office space every year for 30 years, or 2.35 million square feet of new office space. With strong growth, the city will need 4 million square feet in 30 years — 135,000 square feet per year.
Price points work
Citywide, the vacancy rate for Class A office space in 2019 was 6.8 percent, down from 7.8 percent in 2018 and down from 10 percent in 2015.
“You want to see vacancies rates decreasing across the board. That means more people are in your buildings and that usually drives up the cost of rental rates, which allows developers to build more, because the price point works,” DeLisle said. “For the most part, that’s what is happening in St. Petersburg. Our vacancy rates are decreasing and our price points are increasing, not a lot but slightly.”
For downtown Class A office space, lease rates averaged $30.32 a square foot in 2019, while in Gateway, Class A lease rates were $25.72 a square foot last year. Downtown rates moved up a few pennies from 2018, while Gateway lease rates dropped a few pennies.
But Class B and Class C properties took more dramatic turns in 2019. Downtown, lease rates jumped from $22.86 a square foot to $24.12. In Gateway, lease rates climbed from about $17 a square foot to $19.11.
To the south, in the Skyway Marina District — the area along 34th Street South from 30th Avenue South to 54th Avenue South — there’s virtually no office space left. Vacancy rates for all classes of office space dropped from 6 percent in 2015 to 1.9 percent last year. Lease rates increased from $15.96 in 2015 to $20.87 in 2019, with the biggest bump in cost between 2018 and 2019.
“Who thought that was going to happen? Five years ago we were talking about hopefully, maybe we could get somebody interested. Well, that has taken off. A lot of redevelopment is occurring there now and the vacancy rate is way down — 1.9 percent because those buildings are being redeveloped — and the price points are going up, but not as high as downtown,” DeLisle said.
Three major residential projects are underway in the Skyway Marina District — Marina Walk, a 245-unit apartment complex at 4601 34th St. S.; Sur Club, a 296-unit mixed-use development at 3000 34th St. S.; and The Addison at Skyway Marina, a 308-unit Class A rental apartment community at 3951 34th St. S. Combined, they will produce 849 housing units.
“A lot of times what happens is when downtown catches on fire and gets hot, prices go up and developers start moving out further,” DeLisle said. “This is housing that’s affordable, as the mayor would say. It’s not affordable housing but it’s housing that’s affordable. The price point is lower than downtown and it is an option to keep more young people working in our city.”
The rising demand for apartments and offices comes as the city’s economy continues to improve. Some of the St. Petersburg economic statistics highlighted at the presentation were:
Median household income: $58,087, up 26.1 percent between 2014 and 2018. U.S. median household income is $61,937 and it’s $54,912 in the Tampa-St. Petersburg-Clearwater metro area.
African American median household income: $48,587, up 72 percent between 2014 and 2018. That’s higher than in the U.S. ($41,511) and in the metro area ($41, 612).
Poverty rate: 12.3 percent in St. Pete, compared to 13.1 percent nationally and 13.4 percent in the metro area. The poverty rate dropped 30.9 percent in St. Petersburg between 2014 and 2018, and dropped 45.8 percent for African Americans in St. Pete in that same time period.
Total construction value: $783 million in 2019, up 12.5 percent from 2018
Permits issued: 34,998 in 2019, up 1.7 percent from 2018
Median home sale price: $227,000 in St. Petersburg in 2019, compared to $240,000 in Tampa, $219,000 in the metro area, and $313,000 in the United States
Employment: 121,258 in 2019, up from 119,308 in 2018, a 1.6 percent increase in net new jobs
See the gallery below for more highlights from the State of the Economy presentation, and check out previous coverage of the opportunities and challenges for the Tropicana Field site here.