ST. PETERSBURG -- The central business district is seeing something lately that hasn't happened anywhere in the Tampa Bay area in more than a decade: construction of a downtown office building.

However, there are a few qualifications to the project that has been under way since late last year on the site of the old Maas Bros. department store. Progress Energy Florida will occupy the 16-story, 200,000-square-foot building that will house nearly 700 employees when it opens next year.

It's the first new high-rise office project to go up in downtown St. Petersburg since One Progress Plaza, also known as Bank of America Tower, was completed in 1990. The Bay area's most recent urban office towers opened in downtown Tampa in 1992.

Since that point, everything else in the way of new office space has been suburban, especially in the city's Gateway area. Yet downtown has realized a reversal of fortune based on vacancy rates, with Class A or premium space reaching just below 5 percent through the first quarter of this year compared with around 12 percent for Gateway.

It's a tremendous turnaround for downtown, which saw many of its marquee corporations such as Franklin Templeton and Raymond James Financial depart for Gateway over the past several years.

"There was no momentum in that market, and at one point it was the weakest," recalled Andy May, executive director of Cushman & Wakefield of Florida Inc. in Tampa. Repositioning of many downtown office buildings helped attract new tenants to available space.

Adding to the current momentum downtown is a spate of new residential condominium towers, some of which offer million-dollar units with spectacular water views and easy access to boat slips. Demand for downtown land by multifamily developers has pushed prices beyond a reasonable point for speculative office development, May said.

On the other hand, there are no hordes of companies currently seeking office space in downtown St. Petersburg, but that isn't a problem for city leaders. Typical office tenants in the district occupy around 3,000 square feet each, prompting the potential for developing office condos, said Don Shea, executive director of the St. Petersburg downtown partnership.

"This is a much different market, and now we're showing up on people's radars across the country," Shea said. For example, Inc. Magazine recently named St. Petersburg among its top 10 "hottest large cities" for doing business.

That doesn't mean St. Petersburg's city center is trying to compete with others nationwide or even with its nearest counterpart, Tampa. At just over 2 million square feet, St. Petersburg's downtown has roughly one-third the office capacity of Tampa's, which has a much higher vacancy rate at around 16 percent.

"We're talking about two totally different horses," May said. "(St. Petersburg) was never intended to be the hub of business in this metropolitan area."

A more fair comparison, he added, would be between downtown St. Petersburg and Tampa's Harbour Island with both offering beautiful waterside settings and premium offices nestled among luxury residences.

Shea and other city leaders give prior administrators credit for properly planning downtown development so that St. Petersburg can take advantage of what appears to be optimum timing for an urban boom nationwide that has many Americans choosing to live closer to where they work.

"It's really hard to get your waterfront back once you give it away," said Shea, who is originally from Boston.

By the same token, St. Petersburg needs to preserve its downtown office base, which is subject to the same redevelopment trends as the rest of Pinellas County. For example, Progress Energy's current headquarters in the Central Station building is likely to revert to retail use next year, while the former BayView Tower office building is being demolished to make way for high-rise condos.

The redevelopment trend is extending to the city's quality-of-life elements, in particular the renovated Mahaffey Theater and the new Salvador Dali Museum, which received a $4 million appropriation by the Florida Legislature this year.

"It really gives us the right to claim ourselves as a cultural mecca," Shea said.

ccronan@bizjournals.com | 813.342.2468