MARKET REPORT – via Marcus & Millichap
Tampa-St. Petersburg Metro Area
Fourth Quarter 2012
Operators Raising Rents, Heightening Investor Interest
Modest economic growth and job creation will support an additional decline in vacancy and further rent increases in Tampa Bay this year. The market rolls into the final stretch of 2012 behind several consecutive quarters of positive net absorption and, only recently, an enhanced ability to raise rents. The next two or three quarters will determine how much higher operators can push rents, and several current trends will shape the outcome.
Unemployment in Tampa Bay has dropped significantly this year but, at north of 8 percent, considerable slack remains in the labor market, suppressing wages and incomes. The mix of jobs created since the end of the recession may also limit how much rent residents can afford to pay. Many jobs in professional and business services, the metro’s leading sector in job creation over the past three years, require degrees and presumably pay well. However, about 40 percent of all jobs added since the economic downturn ended are in leisure and hospitality, where incomes are typically low.
Ultimately, success in raising rents will rest on a property’s nearby demand generators and its tenant profile. Cap rates have started to compress as a result of strong underlying operations and inexpensive financing. Class A complexes generally trade at initial returns in the high-6 percent range, though some recent deals for new assets were executed at closer to 6 percent. Investors’ appetite for Class B and B-minus properties also remains intense, with cap rates in this segment in the 7 percent range.
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