Most large cities are recovering from the pandemic's impact on their economies and commercial real estate markets. However, one city has fared better than others. According to an index developed by Newmark Research, Tampa, Florida, stood out as the top opportunity for investors among the 22 major markets it tracks.
Here's a closer look at why Tampa rose to the top and how investors can capture the city's abundant real estate opportunities.
Rising to the top of the rankings
The Newmark Opportunity Index ranked the economies and commercial real estate property types of 22 markets to find the top performers. Tampa ranked highly in each category. For example, its overall economy ranked second only to Nashville, Tennessee, driven by the swift recovery in employment. By March of this year, it was only down 2.7% compared to its pre-pandemic level in February of last year.
Meanwhile, Tampa's commercial real estate market ranked high across all five main property types. It had the top-ranked office market, as it saw the smallest increase in vacancy among the 22 markets covered in Newmark's index. Meanwhile, Tampa had the fourth-best industrial market, tied for the fifth-best multifamily market, ranked fourth in hospitality, and tied for the second-best retail market.
The city's multifamily market benefited from strong effective rent growth (third overall) and rising occupancy (also the third-best), thanks to a solid employment market and continued population growth. Meanwhile, its hospitality market had the smallest declines in occupancy, RevPAR, and average daily rate among all markets in the index. These factors make Tampa stand out as the best overall market for real estate investors.
How to invest in Tampa's commercial real estate opportunities
Because Tampa has remained relatively strong over the past year, it will likely continue attracting investment dollars. Because of that, Newmark cautioned that the limited size of its commercial real estate inventory would make it more challenging for investors to find opportunities. Still, real estate investors interested in Tampa shouldn't let that stop them from contacting a broker. Likewise, they could check out real estate crowdfunding platforms in search of Tampa-focused investment opportunities.
Another way real estate investors can gain some exposure to the Tampa market is through real estate investment trusts (REITs) that have a meaningful portion of their portfolio allocated to the city. For example, Tampa is the fourth-largest market of Sun Belt-focused office REIT Highwoods Properties Trust (NYSE: HIW), contributing 13% of its annualized rent.
Meanwhile, that number is on track to grow. Highwood Properties is investing $71 million to construct an additional 150,000 square feet of office space in the Tampa market. Highwoods also has enough land to build more than 1.4 million square feet of additional office space in Tampa as demand materializes. With companies continuing to relocate and expand in the city to take advantage of its strong economy and business climate, REITs like Highwoods with lots of exposure to the Tampa market should benefit from high occupancy levels and above-average rent growth.
Meanwhile, investors interested in Tampa's strong multifamily market could consider Mid-America Apartment Communities (NYSE: MMA). Tampa is the residential REIT's third-largest market at 6.6% of its net operating income. The REIT is working to take advantage of Tampa's strong multifamily market by redeveloping existing units to capture higher rental rates.
REITs like Mid-America with a strong presence in Tampa should benefit from above-average rent growth as more people move into the city. According to one estimate, Tampa will add 188,000 new residents between 2021 and 2023 -- the county's 10th largest projected population increase.
Investors interested in Tampa's growing industrial market could consider EastGroup Properties (NYSE: EGP). The industrial REIT currently gets 9.6% of its annualized base rent from Tampa, its second-largest market. Meanwhile, the REIT continues to expand in that market, as it currently has one 136,000-square-foot project under construction and owns enough land in the city to build another 213,000 square feet of industrial space. With the Tampa industrial market continuing to grow, REITs like EastGroup should benefit from having a presence in the city, as this growth should drive strong rent growth at its existing properties.
A top market for real estate opportunities
Tampa's economy and commercial real estate market weathered the pandemic better than any other city. That puts it in a strong position to continue prospering during the post-pandemic recovery.
This upside makes it an ideal location for real estate investors. Commercial real estate in the city should benefit from high occupancy levels and strong rent growth, especially as people and businesses continue moving into the city. Because of that, real estate investors should consider looking for opportunities to invest in the Tampa market.