Tampa residents have become accustomed to seeing cranes lifting steel beams onto downtown apartment towers and bulldozers clearing land for new office buildings in the Midtown Tampa development.
That won’t go away anytime soon, says Andrew Wright, the CEO and managing partner of the commercial real estate firm Franklin Street. But don’t expect to see any new projects get underway in the next six to 12 months.
“In terms of real estate projects themselves, for the most part, the trains are on the tracks. You don’t see that immediate adjustment like you would see, maybe, in a restaurant,” he says.
“Certainly going forward it’s going to have a lot of impacts,” he adds.
Throughout the pandemic, Franklin Street has hosted a series of webinars with experts from across different segments of commercial real estate, from retail to investments and insurance, to help businesses determine a path forward. Abbey Dohring Ahern, whose Dohring Group represents both tenants and landlords in the office and retail spaces, says virtual tours have become popular with clients taking a first look at a property over the last few months, somewhat of a new innovation for commercial real estate.
In the last few years, rental rates around the downtown and South Tampa areas have hovered near $40 or $50 a square foot and been out of reach for many small businesses. Ahern says shifts in the market spurred by the pandemic may give these business owners access to the city’s most desirable real estate for the first time.
“I think there’s going to be some opportunity there,” she says. “There might be a little more inventory coming back to us [to] find more spaces for the local [businesses].”
But, for the most part, there are a lot of unknowns in the short-term future of commercial real estate, both Wright and Ahern say.
“How long is it going to last? How deep is the impact? We don’t know where the end is,” Wright says. “All of these things kind of bundle into uncertainty. That then, by way of that uncertainty, gets into psychology [and] how people interact with each other.”
The concept of social distancing and the desire for personal space encouraged by the pandemic will likely find its way into office design, Ahern says. She predicts a resurgence in the individual office for some businesses, as well as a continued embrace of remote work.
“We’re seeing a need for “right-sizing,” she explains. “Some [businesses] will need more space as they move away from the cube-farm with shared common spaces. Others will need less space as several members of their teams realize they can effectively work from home and rely on platforms like Zoom to keep the interactive work environment in full force.”
Wright expects to see new features inside offices that will reduce the number of surfaces employees touch, like keyless entries and smart elevators, plus glass dividers or other cubicle-like setups.
“I think it’s going to take a little while longer on the office side to see how it really plays out,” he says. “But ultimately it will impact design, and I think it will suppress demand.”
Similarly, it will take time to see the pandemic’s full impact on the apartment and condo market. But already, Wright says rents have started to decrease slightly, after 10 straight years of increases. Many city-dwellers were sold on the idea that they could live with less space in their own unit, and in close proximity to others, in exchange for easy access to amenities in their surrounding community. When the virus effectively trapped us in our homes for long periods of time, Wright says, that may have made some people start to consider less dense neighborhoods or a single-family home.
“[People might be asking themselves] do I really want to live in a 400-unit apartment complex with a bunch of people that I have to be in an elevator [with], or do I want to move out to the suburbs and rent a townhouse with a little bit more space?” he adds. “People don’t want to be, at least in this current moment for the next six to 12 months, they’re not looking to get into real high dense situations.”
Retail real estate will take the biggest hit, Wright says. The industry has already been in crisis over the last decade thanks to digital retailers like Amazon. Attempts to reinvent retail spaces have generally focused people gathering for hands-on experiences they can’t get online — all of which has been disrupted by the pandemic. Wright believes that people’s desire to gather will eventually override any sense of potential danger and help those businesses bounce back. But there will be a huge loss of small, mom-and-pop type businesses as we exit this economic downturn, he adds.
“Expect to see 30 to 35% [fewer] restaurants as we come out of this,” Wright says. “I think, in terms of retail development, you’ll see it grind to almost an absolute halt. A couple of exceptions would be A+ locations and mixed-use developments. Even the massive restaurateurs aren’t necessarily lining up to sign up for those big rental rates that justify the construction.”
On the micro level, Abbey Dohring Ahern says many retail landlords are seeing the bigger picture and assisting their clients with rent deferment or abatement, but moving forward they will likely tighten the requirements and qualifiers of new tenants, like the amount of cash on hand at signing.
While the economic uncertainty caused by the virus will cause development in Tampa to “hit a wall” in the next six to 12 months, Wright emphasizes that, over the long term, it will continue at a feverish pace.
“Projects that are in play will continue to be developed, but you won’t see anything new get started here over the next six to 12 months. But over a five to 10 year period, expect to see robust growth,” he says. “There’s going to be a lot of opportunity for people coming out of this.”