Tucked into Florida's Gulf Coast, Tampa is a vibrant and rapidly expanding city offering a lot to potential commercial real estate investors. Tampa has experienced incredible population growth in the last few years, spurred on by an expanding economy bolstered by tourism and startups. Many large corporations are moving to Tampa, encouraged by the attractive business incentives and favorable tax climate. Tampa also offers excellent infrastructure and connectivity, being well-served by Florida's comprehensive network of highways, rail, and international ports.
These factors have led to Tampa being listed as one of the strongest commercial real estate markets in the United States. But will that upward trend continue? And is now a good time to invest in the Tampa commercial real estate market? Learn more about where the market may be heading over the next year.
Tampa commercial real estate market forecast 2023
Tampa is growing and becoming an attractive new home for many national corporations. With its appealing tax laws, great connectivity, and bursting population growth, what does it mean for the commercial real estate market? Here's our forecast for the next year.
Commercial real estate values are increasing with low vacancy rates
The growth in the area is good news for the commercial real estate market. Demand for office space is robust and outpacing demand in much of the country. That led to a low 4.3% vacancy rate at the beginning of 2023. Retail space is similar, with a five percent growth in the market over the last year and a low 3.1% vacancy rate. It's even better news for industrial real estate, which has seen an incredible 11% rental growth over the last 12 months and a vacancy rate of just 0.9%. Rental prices for all these commercial real estate sectors have grown above the national average, putting their value at a premium.
Rising interest rates will put existing spaces at a premium
Interest rates reached a 16-year high in the first half of 2023, hitting 5.25%. Incredibly, though, it's shown little signs of slowing down Florida's commercial real estate market. Typically, investors see slower growth and lower property values when interest rates increase. However, because of the flourishing Florida economy and favorable tax environment, the commercial real estate market continues to grow in Tampa. Where many investors would see lower returns on high-interest properties, they are still making a profit thanks to rising rental costs. Rising interest rates may also slow down the construction of new commercial spaces, putting existing spaces at a premium.
Investing indicators will (probably) favor commercial property landlords
Interest rates are cutting profit margins, but that's a more significant concern for residential landlords. Commercial landlords in Tampa are enjoying ultra-low vacancy rates, particularly in the industrial market. Long-term leases on these spaces offer financial security for commercial landlords, which is largely unheard of in the residential sector. So while current interest rates might make those profit margins slim, what goes up must eventually come down, and those profit margins should get much healthier in the future.
Positive net population migration in record numbers will drive growth
Tampa's population has surged in the last five years, and it's estimated that around 150 people move to Tampa daily. Some estimates put that number as high as 850. The Tampa Bay Economic Development Council predicts a continuing surge in people moving into the area and that downtown Tampa will experience the most growth in the next five years, expanding by as much as 25%.
More people are coming to Tampa, and a demand for more retail and industrial space comes with them.
Hillsborough County commercial real estate market trends 2023
Hillsborough County is one of the fastest-growing counties in the United States. That population growth momentum will carry forward, with more office space growth, increasing demand for retail, and plenty of need for industrial space. That demand will outpace what's happening in much of the country, putting the Hillsborough commercial real estate market at the top for demand. Investors who can get in now could be well-placed for significant returns in 2023.
How COVID-19 affected Tampa's commercial real estate market
Like the rest of Florida, Tampa was mainly resilient to the impact of COVID-19. Lockdowns here were relatively mild, with little impact on the local market. Many companies adopted a hybrid working environment, but a lot of them have returned to the workplace.
The biggest impact COVID-19 had on the market was an increase in people wanting to move to Florida. The population increase means there is more demand for commercial real estate than there is supply.
Tampa commercial real estate foreclosure statistics 2023
Foreclosures across the United States are up, peaking in the first half of 2023 with 35,196 U.S. properties going into foreclosure. Florida topped the list of states with the most foreclosures. Increasing interest rates are primarily to blame, driving monthly repayments beyond what property owners can handle. Many landlords are attempting to pass those costs onto their tenants, which has led to a significant increase in rental prices.
Tampa's average commercial real estate rental prices in 2023
With the demand for commercial space in Tampa growing consistently, rent prices have been on the rise, with low vacancy rates overall. As of August 2023, the vacancy rate for the office market is 8.9%, with rent prices continuously rising and currently sitting at an average of $28.31 per square foot — up 3.4% year over year.
Demand for industrial space has also intensified, with a current vacancy rate of just 4% as of the third quarter of 2023. The availability rate for industrial space is currently 5.5%, with a market rent of $11.96. Overall, the market rent for industrial properties has risen by over 67% in the last five years due to soaring demand and new construction in light of low vacancies.
Should you invest in Tampa's commercial real estate market?
If you have the capital to invest, the sooner you can do it, the better. Demand is outpacing supply, so anyone who owns commercial property in Tampa shouldn't have any issues renting it out, as retail and industrial properties slightly out-edge office space. Interest rates may rise, but Florida's economy is outpacing it, meaning plenty of businesses are looking for commercial space with the capital to secure long-term leases. The sooner you can get tenants into a lease, the better because profit margins should go up as inflation slows and interest rates go down.
Where should you invest in Tampa commercial real estate?
- Fastest growing population in all of Tampa.
- Home of major historic and shopping districts.
- Lots of businesses looking for commercial space in this major urban area.
- Well-positioned to serve both Tampa and Orlando.
- Huge industrial labor force.
- Tons of commercial development primed for investment.
- Up-and-coming Tampa neighborhood seeing explosive growth.
- Huge demand for retail space within the active community.
- Known for its independent businesses and start-up-friendly environment.
Ready to invest in the Tampa commercial real estate market?
Tampa is well-positioned to experience continued growth in the commercial real estate market. Despite rising interest rates, the explosive growth within the region is driving more demand for commercial space than there is supply. Investors holding those properties are enjoying record-high rents and record-low vacancies. The area is only expected to continue to grow, with more people moving into the area along with more large corporations, small businesses, and industrial facilities.
If you are interested in investing in Tampa's exploding commercial real estate market, Alan J. Kronenberg can help you find the perfect property. A lifelong Florida resident, Alan has extensive knowledge about the region and can help investors pinpoint the next hot market to maximize their investment. Call Alan today to start the search for your next commercial real estate investment in the Tampa area.