Tampa Bay Industrial Rent Growth Soars Past Long-Term Average

The industrial market in Florida's Tampa Bay has been on a tear since 2015, reflecting a nationwide uptick in demand for warehouse and distribution space driven by the retail shift toward online shopping.

Sales volume is up sharply in the past four years as the region benefits from robust leasing by tenants. Nationally, vacancies are down to an average of less than 5%, fueling all-time highs in rent growth, according to data from CoStar Market Analytics.

“The combination of near-record low vacancies and record-high rent growth is attractive to investors as it boosts net operating incomes and ultimately returns on investment,” CoStar analyst Brian Alford wrote in an email. “Tampa mirrors the national picture on these trends, and receives additional tailwinds from a high population growth rate, helping drive personal consumption and ultimately industrial demand."

Vacancies in Hillsborough, Pinellas, Pasco and Hernando counties are only 80 basis points above the all-time low of 4.2% tracked by CoStar, with annual rent growth over twice the long-term average, he noted.

The explosion of e-commerce has intensified industrial demand because online retailers need places to store products before they’re shipped to customers. Still-vibrant residential and commercial construction markets contribute to the industrial boom as well, as developers seek warehouse space for building materials, analysts say.

Another factor in Tampa Bay's thriving industrial market is the growing population along Interstate 4, a highway that runs west-to-east across the state from Tampa to Daytona Beach.

“There’s so much money on the street looking to get into commercial real estate,” said John Dunphy, an executive vice president with Jones Lang LaSalle in Tampa. “I’m seeing at least a buyer a week that’s calling me to buy property from 20,000 to 200,000 square feet. I just don’t have it. It’s as active as I’ve ever seen it, and I’ve been in the business for 32 years.”

Low interest rates and favorable financing will continue to make industrial real estate an attractive play for the foreseeable future, Dunphy predicted. Sales may not slow down because of lack of interest, but because brokers are running out of properties that have not already traded hands recently, he explained.

The Tampa Bay market has averaged just over 500 industrial transactions a year from 2015 through 2018, but the pace has cooled somewhat in 2019 while still surpassing long-term averages, according to CoStar data.

Rent growth is so strong that owners may be reluctant to sell, noted Alford.

He also added that the slight sales slowdown with increased volume is a sign of an apparent shift in investor preference from smaller, specialized or flex properties to larger warehouses and distribution centers.

For instance, Cole Office & Industrial REIT recently sold a 1 million-square-foot Amazon distribution center at 3350 Laurel Ridge Ave. in Ruskin, Florida, to Industrial Logistics Property Trust for $123.6 million as part of a $624.7 million portfolio deal, public records show. Cole paid $103.6 million in 2016.

In each of the past four years, Tampa Bay's sales volume has posted a total of at least $520 million, far surpassing the annual totals from 2012-14, CoStar data shows.

Meanwhile, 2019 is off to a strong start. The first quarter sales total of $144 million is the second-best January-through-March period in the region’s history, trailing only the $157 million in the first quarter of 2018, according to CoStar.

What’s more, buoyed by the April sale of the Amazon property in Ruskin, the first half of the year already is on pace to shatter the all-time Tampa Bay mark of $324 million from January through June 2016.