MANATEE -- Empty office buildings abound across the Tampa Bay region as commercial corridors struggle to find suitors.
Commercial real estate has failed to keep pace with recent improvements in the housing and job markets, leaving the Manatee-Sarasota area with the slowest absorption rate in the region, records show.
While business rents have stabilized some, and occupancy rates are coming off their best quarter in nearly two years, the snail’s pace recovery is much slower than many had projected.
Experts say it will take longer for commercial real estate to work through the systemic problems posed by the recession, but like the broader economy, they expect modest gains through 2012.
The trend has anxious landlords willing to offer heavy concessions to lure qualified tenants that now have more options at their fingertips.
“This was not a recession, this was a reset,” said Barry Seidel, president of American Property Group, a commercial real estate firm operating in Manatee, Sarasota and Charlotte counties. “We reset to an earlier time in our history. It’s slowly improving, but it’s going to take a while.”
Vacancy rates in Manatee’s multi-tenant office market have been on a steady climb since 2007, jumping 10 percentage points over that time until their peak in late 2010, according to the Maddux Report.
The numbers have since shown mild improvements through 2011, and the 19 percent vacancy rate in the third quarter was the best since the second quarter of 2009.
The current figures, however, still greatly exceed those from 2008 and 2007, when the rates were treading between 12 and 16 percent, the Maddux Report shows.
“Things are looking up, but it’s not as much as many thought we would see,” said Carlen Maddux, president of the Maddux Research Group. “In the past we’ve seen a heavy spillover, and once Hillsborough and Pinellas fill up, employers look to the neighboring counties.”
Employers used to live by the rule of thumb that every worker needed about 300 square feet of office space. The recession and growth of e-commerce have changed that.
Many companies are downsizing their total office space to reduce overhead, and with the emergence of Internet sales, the cutback hasn’t been cumbersome to business.
For landlords, the trend has posed an adverse impact on lease rates. The market has become so competitive, many building owners are now offering concessions including free rent with an extended lease and interior upgrades to entice potential tenants.
Those who are flexible are having the most success, said Anthony Mazzucca, managing director of NAI Manasota, a commercial brokerage in Lakewood Ranch.
Location also is playing a larger role. Office space situated in a downtown setting or near a popular shopping center has become the most sought after, with space choosey employers could never have afforded before, he said.
The latest weighted average asking rents in Manatee were $18.14 per square foot, below Sarasota’s $18.80 and Hillsborough’s $21.10, but higher than Pinellas’ $17.78, according to the Maddux Report.
“It’s a paradox,” Mazzucca said. “You have people interested, and there’s stuff available, but they’re looking for something that’s new and exciting. The landlords willing to put in capital for improvements are the ones doing well.”
The slowdown in office demand has essentially put a halt to non-residential new construction, which aside from the occasional retail project, won’t rebound until population and job growth does as well, experts predict.
Because office leasing is so heavily tied to the job market, a hiccup in the unemployment trends could spell trouble.
The good news: Unemployment in Manatee and Sarasota slid to single digits for the first time in two years in December, with matching 9.8 percent jobless rates, according to the state labor department.
Economists believe the situation will slowly begin to improve as hesitant employers take the leap into re-expansion.
The nation’s economic uncertainty, gridlock in Congress, and financial meltdown in Europe could become the largest deterrents to commercial real estate going forward, said economist Hank Fishkind.
“This is a softer commercial real estate market compared to most of greater Tampa Bay,” Fishkind said. “We’re overbuilt for retail and office. It will take some time to work through that.”
Josh Salman, Herald business writer, can be reached at 941-745-7095.