Tampa’s downtown commercial real estate market has positioned itself, since the recession, in such a way that is has become increasingly attractive to investors and developers-both local and from outside the market area. Great press and significant media attention about proposed future projects have come to heighten both the draw and the expectations of a market with such high potential for return. Unfortunately, constant coverage by news outlets about such projects, many of which fail to come online, creates a distorted reality about the market itself.

With the exception of very few groups, speculative office and mixed use development in Tampa’s downtown and surrounding area is a risk that no one is able to take at the moment. Large gaps exist, currently, between ‘for sale’ prices and actual offers – price and value are not parallel, signaling to many would-be investors that the downtown Tampa economy is not currently as efficient as one might suppose. That is to say, in an efficient market buyers and sellers ‘freely and openly transact business in high volume at nearly identical prices’, which is not what is currently happening here. (Source: William J. Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created (New York: McGraw-Hill, 2004). See chapter four, Capital, p. 133.)

If distortions about market realities lead to enough disappointed sellers (and, for that matter, buyers), it could undermine the long-term goals of achieving a vibrant, livable downtown due to holdouts on both sides of deals. Sellers can easily become frustrated waiting to ‘hit it big’ due to an inaccurate perception of property values and buyers who are tired of bidding on over-priced parcels with little to no reasonable counter offers from sellers are likely to move on.

The media provides the public with streaming news and information about deals, projects and investor interest in our market because there is a thirst for real time information from their readers. During the recession years, negative coverage of the commercial real estate market by news and media outlets helped foster an environment that saw an artificial drag on pricing that lasted through the recovery period. Today, the coverage is positive and is amplifying price appreciation trends. Often, what occurs is a scenario where media outlets report on development news long before there is a signed contract, permit in place or ground-breaking. It’s good for business but it also helps to magnify price volatility by creating a situation where land holders in the downtown area feel their parcels are worth much more than is reasonable-simply due to proximity of nearby proposed projects.

To be clear, much of the hype around downtown today is around a few key players-with Jeff Vinik and his team at center stage. The concern of this article is to point out that third party investment and development is necessary to jumpstart areas around the downtown core that are not specifically aligned with Vinik’s master-planned project.

Outside of major office building sales (class A), the bulk of future real estate value in Tampa’s downtown is tied up in vacant, poorly-maintained properties and land parcels currently in the hands of long-term investors. These individuals and corporations often expect astronomical returns on their investments due, in part, to the media hype surrounding activity in the downtown market- activity that is projected and planned but has not yet actually materialized. This signals a market where pricing and value are bifurcated – proven by the constant listing of B and C-type product that does not move and yet sees no decrease in pricing strategy. Without a reality check ‘for sale’ signs will remain abundant but ‘sold’ signs will be difficult to find.

The community and media need to challenge these would-be sellers, investors and developers to aim for properly-scaled projects at price points that are sustainable in a second-tier downtown market. Most investors cannot pump billions of dollars into a project and therefore cannot afford to enter a market where they are bidding on properties well above what the actual value of the parcel is worth.

Despite the hype, Tampa is still just beginning its recovery in regards to the commercial market. Office rents have steadily increased in the downtown core over the last few years and sales of major properties (class A) are high. B and C-type product, however, is not moving at the same rate of increase due to the over-valuation of such vacant properties by their owners.

Vacancy has been falling, rents rising and few construction cranes have popped up over the last few years. But, a few things that are not (often) discussed include:

A lack of speculative building and a lack of new to the market tenants in downtown, which in turn would increase the likelihood of a speculative office project. While downtown has seen an overall increase in lease signings the last few years, we are only now exceeding the pre-recession occupancy rates of our best buildings.

Job growth in the Tampa Bay MSA, while still positive, has decreased in the last 12 month period for which there are records available (source: US BLS, Current Employment Statistics). Job growth is imperative to the sustainability of downtown and the real estate market in general.

Downtown Tampa’s cranes have all been for apartment projects, not office buildings. It is office projects, historically speaking, that indicate a healthy downtown economy. One needs only to look to Tampa’s competitors- Raleigh, Nashville and Jacksonville to name a few- to see that the lag in office and mixed-use product development is real.

If Tampa is to be the destination city for millenials and corporations alike , we need significant and sustained job creation. That will start with opportunities to invest in a downtown that has a pricing scale in line with reality. Our restaurants, museums and apartment high rises are great amenities to a fledgling 18-hour city, but most of all what downtown needs is new office and mixed-use construction projects. With exception given to the Vinik project, this is only possible in places where developers can acquire land at a fair price in order to hold rents to a level that is affordable for small to medium sized companies to fill what will be speculative, vacant space.

When it comes to media relations, delivering good news will always make you more friends than delivering bad news- but when that good news is presumptive it can and does distort reality, leading to a false sense of security within the marketplace. To be clear, this is not a bet against Tampa’s future but rather a call for a reality check in assessing where we are currently. Too much emphasis on future development that has yet to result in concrete projects has begun to impact the market in terms of for-sale pricing. Such high prices based on speculation, not comparables, impedes the growth of our downtown.

The city cannot afford to shut out smaller investors and developers by creating an environment that thrives on projections and promises alone. A reality check on the media’s part would serve everyone well, helping to re-align market expectations with market realities and allowing for an adjustment in pricing that encourages sales and not just listings.