The market forecast for commercial real estate practitioners in Tampa Bay is hot, cool and chilly.

There to hear prospects and predictions for industrial land, investment property, retail, office and land investment, nearly 700 people jammed a Grand Hyatt at Rocky Point ballroom for the annual Commercial Real Estate Market Forecast Thursday. It was a joint presentation of the Tampa Bay Business Journal and the National Association of Industrial and Office Properties, or NAIOP.

In the industrial market, with national vacancy rates falling for the last eight consecutive quarters, the local vacancy rate is down to 4.2 percent, with 1 million square feet absorbed within the last 12 months, said Robert Krueger, regional director for Florida at First Industrial Realty Trust. "Those trends are expected to continue," he said.

Optimism in the market ahead is strengthened by the Tampa Bay market becoming the 21st largest MSA in the nation, the Port of Tampa expecting to double its container business, and increased international trade activity.

But materials costs are creating challenges.

"Concrete is now $97 a cubic yard, up from $87 a year ago; copper is out of sight at $8,000 a ton up from $3,000 a year ago and insurance premiums have jumped, in some cases 400 percent," he said.

Lease rates are rising in the region, up more than a dollar to $6.32 a square foot.

"It's a great time to be in the Tampa Bay market," Krueger said. "But the market can change quickly."

Investment: all eyes on Tampa Bay
The investment market continues to be hot, said Michael Winters, managing director of Central Florida for GVA Advantis.

The volume of transactions nationally was up 30 percent with 500 more transactions in 2005 than the prior year, he said.

For deals $5M or greater in Tampa Bay, "it was a blockbuster year in office" investment properties, Winters said. There was $1.2 billion in sales volume, a 152 percent increase in transactions.

The reasons are many, but incredible returns are a key driver.

"Returns are outstanding on what's being reported from large pension funds and the flood of capital into real estate as an investment class," Winters said. "Billions of dollars in private equity are targeting real estate investment trusts, especially," he said.

Reduced availability of assets may present challenges ahead, as well as insurance rates skyrocketing.

In one deal, a buyer walked away from a six-figure transaction and hard deposit because a windstorm deduction that came in after the property was under contract made the deal untenable.

"That trend will continue, and velocity will decrease," he said.

Retail remains hot
The Tampa Bay area has 86 million square feet of retail and enjoys a 94.2 percent occupancy rate, said Pat Duffy, president of Colliers Arnold Commercial Real Estate Services.

In the next 12-18 months, there could be as much as 5.2 million square feet of new retail space coming on line - much of it in Pasco County, Duffy said. But it's a hard thing to predict, he warned.

"Things are taking longer in Pasco County than anyone planned," he said, referring to at least three large-scale mall and lifestyle centers planned in New Tampa and East Pasco County.

Rent rates are also impossible to nail down.

"There's no such thing as an average rent," he said, as new centers are asking $20-$38 dollars, with older established centers asking $15 to $22 - reflecting a wide range.

Big box retailers as anchors are still driving shopping center development, Duffy said. Names like Home Depot, Target, Wal-Mart, Kohl's, Lowe's and Publix continue to dominate with some newcomers adding to the mix.

"JC Penney shows up as a driver of new centers for the first time," he said.

While Florida consumer confidence dropped a whopping 11 percent in August, Duffy said retailers are still "red-hot" in this market.

Office no longer a low cost alternative
Tampa Bay is no longer a cheap alternative for office space.

The overall vacancy rate stands at 11.5 percent, said Larry Richey, senior managing director and operations manager at Cushman-Wakefield of Florida.

The period between 1998 and 2006 saw record leasing activity and record absorption in the area, a total of 9 million square feet during that time.

The insurance, healthcare and financial services sectors continue to be the most dominant users, while mortgage companies have dropped off the list and have been replaced by government services.

Education services and non-traditional colleges are also taking a lot more space than they once did.

Available space is down significantly in the last year and especially or users in the 30,000 square feet to 50,000 square feet range. In all property classes, space was available in 823 properties this year, a 30 percent drop from the 1,074 properties last year.

Richey believes there's 1.3 million square feet under construction.

"It's not going to turn this market around to a tenant's market by any means, we need it - it's going to be a landlord's market for quite some time," he said.

Land investment takes a breather
Rising interest rates have created an oversupply of land and a lot of headaches for the residential folks, said Bill Eshenbaugh, principal with Eshenbaugh Land Co. in Tampa. That's a vastly different scenario than was seen in 2005 when there was a tight market supply. Builders holding land are under a lot of pressure from Wall Street to unload the assets, which aren't liquid, he said.

With thousands of condo units planned in the area, the market for land is changing, Eshenbaugh said. "The lucky ones are the guys that don't have any steel showing out of the ground, because they can still cancel their projects."

Condo conversion projects have also "hit a wall," he said. "In some cases, condo converters are trying to flip back the other way." Apartment projects are taking over sites formerly pegged for town homes. "Brandon is alive," Eshenbaugh said, citing a 1,000-unit project now underway.

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