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San Antonio Office Commercial Real Estate Market Data and Economic Information - We Work Grant Building and Kress CBD

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The vacancy rate for office space in the San Antonio metro has remained between 9.0%–11.0% for 23 consecutive quarters, or Q4 2013. The levels of new construction have pushed the vacancy rate up slightly at 10.7% from the previous quarter at 10.5% and from this time last year at 10.2%.


EXECUTIVE SUMMARY

Vacancy rates remain stable

The vacancy rate for office space in the San Antonio metro has remained between 9.0%–11.0% for 23 consecutive quarters, or Q4 2013. The levels of new construction have pushed the vacancy rate up slightly at 10.7% from the previous quarter at 10.5% and from this time last year at 10.2%. Net absorption broke even between tenants moving into space and tenants moving out of space at negative 2,504 sq. ft. The total was comprised of positive 111,028 sq. ft. of Class A space and negative 125,472 sq. ft. of Class B space. Overall absorption has remained in the red the last three out of four quarters. Space under construction as of the second quarter stood at 1.6 million sq. ft., with about half of that space available for lease. Full-service overall average asking rents are at $23.14 per sq. ft., Class A $27.39, Class B $20.74, and the highest average rate of $36.06 per sq. ft. for Class A space in the CBD.

Economic indicators

The San Antonio economy expanded moderately in May. Job growth was mixed, with professional and business services leading growth with an expansion of 11.4% annualized, or 3,900 net jobs. Manufacturing grew at a healthy pace adding 600 net jobs. Financial activities also expanded at a solid stride, adding 800 net jobs. Two areas of softness were leisure and hospitality, which contracted 3.2%, approximately 4,800 net jobs, and construction, dropping 1,100 jobs. The unemployment rate fell for the fourth consecutive month, to 2.8% in May. This is notably lower than the state’s 3.5% and nation’s 3.6% rates. San Antonio was ranked the No. 2 fastest-growing city in the nation based on the U.S. Census Bureau population estimates from 2017-2018 released in May. San Antonio saw a population increase of 20,824 from July 1, 2017, to July 1, 2018, bringing the total population to 1.53 million residents. The last census survey put San Antonio at the No. 1 spot among the fastest-growing cities.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Supply and Demand graph

San Antonio Office Commercial Real Estate Market Data and Economic Information - Market Indicators table


MARKET OVERVIEW

CBD Class A vacancy at 7.7%

Overall vacancy in the suburban office market was at 11.0%, while overall vacancy in the CBD registered at 8.9%. The CBD has 2.5 million sq. ft. of Class A inventory tracked in 12 buildings with 193,000 sq. ft. of vacant space (7.7%) as of Q2 2019. The amount of vacant Class A space in the CBD has only been at a lower level once since NAI Partners began tracking performance – Q4 2018 at 7.5%. There is approximately 9.0 million sq. ft. of medical office space in the San Antonio market, representing 14.8% of the 60.3 million sq. ft. of total office inventory. The overall vacancy rate for medical office space is 17.0%.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Completions graph

50-acre office park and mixed-use development

Parkline, the new $500 million development is being built near the University of Texas at San Antonio at Interstate 10 between University Boulevard and West Hausman Road. Construction has started on the initial phase of Parkline that includes apartments as well as roadways to support the rest of the mixed-use development. Upon full build-out, Parkline is expected to include 1 million sq. ft. of office space, 1,149 apartments and townhome units, the Aloft Hotel and up to 108,000 sq. ft. of restaurant and retail space.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Net Absorption graph

Investment sales activity slows

Real Capital Analytics data reports office sales volume for Q2 2019 in the San Antonio area at $38.6 million, compared to Q2 2018 at $163.8 million, resulting in a year-over-year quarterly volume change of -76.4% as investors are having a difficult time locating assets to acquire. The primary capital composition for buyers in 2019 was made up of 80.8% private and 17.2% institutional. For sellers, the majority was 72.8% private, and 23.3% institutional. In May Mercury SA LP purchased the 140,720-sq.-ft. Broadway Title office building at 10010 San Pedro Ave. and neighboring 2,420-sq.-ft. bank for $12.7 million in the North Central submarket. The eight-story, Class A office building, built in 1981, has 50,612 sq. ft. available, while the bank is vacant. Both were sold at auction.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Construction graph

New medical center near SeaWorld SA

U.S. Federal Properties announced plans to break ground on a new three-story Veterans Affairs outpatient campus in July 2019. The new property, San Antonio Northwest Health Care Center, is estimated to cost $68 million and will extend 237,000 sq. ft. The facility will be located near U.S. Highway 151 and Rogers Road with an expected completion date in Q4 2019.  The new center will offer services for general and mental health, surgery, laboratory, and a pharmacy. In addition, a dental clinic, dental surgery, and a prosthetics lab will be available. The campus will be built on a 25-acre site with 200 parking spaces. Nearly 1.6 million sq. ft. of office space is under construction in San Antonio, of which more than 180,000 sq. ft.–or 16%—is in the city’s Northwest office submarket.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Sales Volume graph

CBD positive leasing news

San Antonio, being regarded more often as a major market, is strengthened by the desirability that the Central Business District holds for businesses. The largest signed lease year-to-date took place in the CBD, with WeWork Companies Inc. signing a 75,000-sq.-ft. lease for the top two floors of the Grant Building and the top four floors of the Kress Building. Both buildings, on the 300 block of Houston Street had been vacant for years before WeWork’s lease. The company announced in 2018 its plans to occupy space at The Kress Building by 2020, having about 1,105 members locally when it opens. A few of the metro’s other largest leases signed during 2019 include a renewal for Baptist Health System School (66,263 sq. ft.) in the Northwest submarket, GreatCall (51,833 sq. ft.) in the Far West submarket, and Clear Channel Outdoor (37,300 sq. ft.) in the Northwest submarket. The total volume of square footage signed during the second quarter was at 594,000 sq. ft., with the largest concentration—325,000 sq. ft. (55%)—in the Northwest submarket.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Leasing Activity graph

Office market rents continue to rise

As a market indicator, concessions such as free rent and tenant improvement allowances make posted rents less meaningful as net effective rents can change significantly once negotiations begin. All said, with the top-dollar renovations, company relocations, and new Class A buildings being constructed, office tenants want to be where there’s a lot of activity and a mixed-use atmosphere that attracts young professionals and are willing to pay higher rental rates. The price of San Antonio’s office space is climbing as demand grows and development is booming. Year-over-year overall full-service asking rents rose by $1.06 per sq. ft. at $23.14 compared to $22.08 per sq. ft. as of Q2 2018. With rents increasing, stable vacancy rates, and construction showing no signs of braking, the San Antonio office market should be full steam ahead for the remainder of 2019.

San Antonio Office Commercial Real Estate Market Data and Economic Information - Asking Rents graph


Leta Wauson
Director of Research
[email protected]
tel 713 275 9618

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