The last time the nation's economy cooled off - in the early 1990s - the Tampa Bay area's real estate market went into a tailspin.

Office vacancy rates soared above 20% as two brand-new downtown Tampa towers sat practically empty for several years. Developers got squeezed when they couldn't lease their speculative projects. And new construction ground to a halt as financing dried up.

But now, as talk turns to another economic slowdown around the nation, real estate professionals in Tampa Bay are more confident. There's a simple explanation: This time, there hasn't been a rash of overbuilding of office, retail or industrial buildings in Tampa, St. Petersburg or Clearwater.

"The best part about the tightening of the credit markets last fall was that it reduced the area's exposure. There wasn't overbuilding," says Lee Arnold, CEO of Colliers Arnold Commercial Real Estate Services in Clearwater. "And though there is saturation in some submarkets for certain types of development, there's still an incredible energy, plenty of activity."

Consider this: From 1984 to '88, 15.5 million sq. ft. of office space was built in Tampa Bay, much of it financed by free-wheeling banks and savings and loans. But from 1994 to '98, only 4 million sq. ft. went up, financed in large part by pension funds, publicly traded real estate companies and financial institutions that set tough performance criteria.

"Lenders are more careful these days, and developers are being asked to put more money up front," says Mike Hogan, who runs The Hogan Group, a Tampa-based development company that plans to launch a number of projects around the Southeast in 1999 thanks to a line of credit with Credit Suisse First Boston. "Projects are being looked at much more closely."

In commercial real estate, 1998 was about as good as it gets in Tampa Bay, fueled by the region's strong job growth. The area's job growth was 4.3% from November 1997 to November 1998, ranking fifth among U.S. metro areas with populations over 500,000. The only hotter areas were Las Vegas; Phoenix; Riverside-San Bernardino, Calif.; and Orlando, Fla. Tampa Bay has become a hotbed of back-office operations for financial services companies like Citigroup, USAA insurance and Capital One Financial Corp., with jobs ranging from entry-level help desk positions to more sophisticated technology-related jobs.

That growth - along with the continued health of the area's traditional service and tourism industries - has the area's economy humming. Mark Vitner, a First Union Corp. economist, estimates that the Tampa Bay economy will grow 3.7% this year, compared to the bank's prediction of 2.5% growth for the national economy. The area's unemployment rate is about 3%, which is so low it can actually present a problem for employers looking for qualified workers.

Tampa Bay's economic health is reflected in the outlook for commercial real estate. A total of 2.4 million sq. ft. of new office space is scheduled to be built this year, increasing the area's total to more than 40 million sq. ft. At the same time, Colliers Arnold predicts that the area will have more than 2.4 million sq. ft. of net absorption, keeping the office vacancy rate at its present mark of about 9%.

Tampa Bay has attracted attention from all types of real estate companies, including large REITs such as Highwoods Properties Inc., a Raleigh, N.C., REIT, to fast-growing Florida developers such as The St. Joe Co. and Echelon International Corp.

Still, everyone's talking about the tightening of credit. Real estate execs say the outlook for the area market will be gauged by how fast the speculative buildings now under construction fill. There are 14 speculative office buildings and 11 speculative industrial buildings now being built, totaling about 2.2 million sq. ft., according to Cushman & Wakefield of Florida.

Real estate experts are optimistic about the office, industrial, multifamily, hotel and retail markets, though there is some concern about retail competition as four new restaurant/retail/movie complexes start construction. Two competing projects will be going up a mile from one another - one in downtown Tampa's Garrison Seaport district and one in the nearby and popular Ybor City area.

Still, real estate professionals say they're thankful to be in Tampa Bay rather than in cities like Atlanta and Phoenix, where overbuilding in some types of development may soon take its toll.

And though there is continuing concern that the area needs to improve on its reputation as a haven for call-center jobs, Tampa Bay does offer everything from sunshine to a low cost of living to a well-regarded airport.

One indicator of the market's health is its level of commercial real estate investment. Even though several REITs dramatically slowed their acquisition pace in Florida in the second half of 1998, $725 million was invested in Tampa Bay area commercial projects last year, CB Richard Ellis reports. That's fairly close to the $775 million figure for 1997.

"What people realize more and more in companies' decisions on where to move is that there's more to it than just supply and demand," says Ray Sandelli, managing director of CB Richard Ellis' Tampa office. " 'What are the labor costs, the cost of housing? And how does the personal and professional life blend for workers?' Tampa Bay does well on all those counts, and that will continue to drive the local economy's growth."

Gateway to office market There's plenty of both build-to-suit and speculative activity in the area's two hottest spots - the Gateway area of St. Petersburg and the I-75 corridor east of Tampa. There's also both new construction and renovation work going on in more traditional submarkets like the Westshore and downtown areas of Tampa.

For example, Echelon International, a fast-growing company based in St. Petersburg, is building a 103,900 sq. ft. office building in the Carillon office park in Gateway, which has seen phenomenal growth thanks to expansions of tenants such as Raymond James Financial Inc. and Franklin Templeton Group.

Financial services companies are also growing in Tampa. Citigroup moved into its large new campus off I-75 last year, while Capital One is building a four-building complex off the Veterans Expressway in northwest Tampa.

Another large project in the I-75 area is an 800,000 sq. ft. campus being planned for Intermedia Communications Inc., a Tampa telecommunications provider. Highwoods Properties will build the complex, and officials say plans are moving ahead even though Intermedia has been having some financial problems.

In downtown Tampa and downtown St. Petersburg, where land is hard to come by, developers have to be creative.

In Tampa, Chesapeake Atlantic Holdings bought the former 100 Twiggs building and is renovating it for anchor tenant Huntington Banks. That building's success indicates the growing popularity of Class-B space as some downtown tenants are turned off by the rising cost of Class-A offices. And in downtown St. Petersburg, Tampa real estate investor Joel A. Cantor bought The William C. Cramer Federal Building at auction for $3.9-million. He plans to spend another $3.5 million to renovate the 34-year-old, eight-story building and turn it into office space.

With vacancy rates so low, rental rates have been inching up, reaching $26 per sq. ft. for Class-A space in the Rocky Point area of Westshore and $21-$24 in other desirable markets like Gateway, the I-75 corridor and downtown Tampa. The overall average for Tampa Bay asking lease rates was $20.30 for Class-A space in 1998 and $15.50 for Class-B space, according to Grubb and Ellis of Florida Inc.

At the same time, sale prices have been going up, thanks to interest from well-financed REITs and other real estate companies. One property in the Rocky Point area of Tampa brought a price of $148 per sq. ft. But real estate execs expect price inflation to slow down this year as REITs turn their attention to build-to-suit and speculative projects.

The St. Joe Co., a Jacksonville outfit that's moving from its roots as a sleepy landowner and paper conglomerate to become an aggressive real estate company, is quickly becoming a big player in Tampa Bay. (See NREI's profile of St. Joe in the Feb. 15 issue.) In January, it bought Florida Real Estate Advisors, a well-known Tampa commercial real estate company, after buying the state's largest residential real estate company, Prudential Florida Realty of Clearwater last year.

The other deal made recently that promises to change the Tampa Bay real estate landscape was Dallas-based Trammell Crow Co.'s purchase of Charlotte, N.C.-based Faison & Associates. Faison is developing the Westlake Corporate Center, an office park in northwest Tampa, along with a new Marriott convention center hotel in downtown Tampa. Trammell Crow plans to build on its area presence by expanding its retail holdings while also looking for opportunities in the office market.

The overall vacancy rate in Tampa Bay's office market was 10.2% in 1998, according to Grubb and Ellis, which predicts that the rate will go up slightly this year. Lease rates are expected to go up marginally, a function of the tight market. For example, Cushman & Wakefield predicts that overall office rental rates in downtown Tampa, now at $17.84 per sq. ft., will continue a moderate increase into next year, when they're expected to reach $19.40 per sq. ft.

As for the continuing credit crunch in commercial real estate, it may be felt most in the development of some of the area's new office parks. Cautious developers are putting up one building at a time, so the second and third buildings in a park may take longer than first expected as everyone watches market conditions.

Industrial Market remains strong A few years ago, industrial space was just what the name implied - plain-vanilla buildings built with concrete floors and high ceilings. But now - with features like knock-out panels for windows and 30-foot ceilings designed to accommodate all types of users - multi-use buildings are all the rage in industrial parks all around Tampa Bay.

One example is Gateway Business Park, a speculative project being built at the intersection of I- 275 and Gandy Boulevard in north St. Petersburg. Developer Grady Pridgen is confident he can fill four buildings totaling 585,000 sq, ft. because the industrial vacancy rate is a mere 2.5% in Pinellas County and 7% in Hillsborough County.

Pridgen's park is an example of so-called industrial/office space, with advantages like plenty of parking and good locations for office users, along with the traditional appeal of industrial space. "Companies want the option of different uses," says Jeffrey Bardin, vice president of the industrial services group for Grubb & Ellis.

As always, spots off major roads like I-75 and I-275 are the most popular areas for industrial development, and much of the 622,000 sq. ft. of speculative industrial space under construction is near one of those two interstates. But as land starts to run out, and more projects once envisioned as industrial parks are turned into office space, industrial space will continue to move toward the outer boundaries of the Tampa Bay area.

"The development is moving south and east of Tampa," says Gary Bauler, who specializes in industrial properties for CB Richard Ellis. "Of course, there's very little space left in Pinellas, and things are getting tighter in Tampa, too."

Let's go shopping The big news in Tampa Bay retail this year is the impending arrival of the entertainment-based retail center. Though this is still a new and largely unproven concept, four such centers are scheduled to open in the market next year.

* BayWalk will have a 20-screen Muvico movie theater complex combined with bars, restaurants and retail in downtown St. Petersburg. The Sembler Co., a longtime St. Petersburg retail developer, is working with Redevelopment Partners on the project. Construction is set to begin this summer, with the project opening in summer 2000.

* A few miles to the north, Echelon International is planning Carillon Town Center project, which will feature a 24-screen movie theater complex, hotel, office space, bars, restaurants and retail. Construction will start in August, with an opening by late 2000.

* The Channelside at Garrison Seaport project in downtown Tampa boasts an IMAX theater in its 15-screen Regal movie complex, along with retail and area restaurant newcomers Charley's Crab, Max's Grille and Aztec World Cafe. The developer is The Hogan Group. Construction began in January, and opening is expected by February 2000.

* About a mile away in the Ybor City area, The Sembler Co. and Steiner & Associates are developing the Centro Ybor project. It will be anchored by a 20-screen Muvico movie theater, with restaurants, bars, retail and a GameWorks entertainment center as well. Construction is scheduled to start in March, with opening in June 2000.

At the same time, there are at least four other movie theater complexes going up around the area, leading many in the industry to wonder if there are enough moviegoers to support all these projects.

"The big losers probably will be the traditional theaters that don't have stadium seating and surround sound," says David Conn, a retail expert at CB Richard Ellis. "But it's also going to be interesting to see how the entertainment centers do against each other. This is a new theme, and Tampa Bay usually isn't a trendsetter."

In the Westshore area of Tampa, International Plaza promises to bring Lord & Taylor, Nordstrom and Neiman Marcus to the area. That's major competition for nearby West Shore Plaza, which recently opened the area's first Saks Fifth Avenue store.

Experts differ on how the two malls will fare so close to each other - some say both can't thrive, while others think the two developments will draw shoppers from a 100-square-mile area, providing enough business for both.

The battle has already gotten ugly. West Shore Plaza's owners have mounted a legal assault against International Plaza's developers, accusing the new mall of getting a sweetheart lease deal from its landlord, the Hillsborough Aviation Authority.

Elsewhere, the new Citrus Park Town Center opens soon in northwest Tampa, while retail experts look for continued growth in strip centers anchored by grocery stores and big-box retailers like Home Depot. "Things are going to get tighter and tougher for developers to find spots for new shopping centers," Conn says. "Tampa Bay runs pretty much north and south, not in a circle like Atlanta and Phoenix. So it's harder to look outside the area's boundaries and figure out the next obvious place for a center as the area grows."