Download the PDF
Asking rent at all-time high even as leasing and absorption slow to start 2018
San Antonio office asking rent at all-time high
San Antonio’s overall vacancy rate was 9.8% ending Q1 2018, unchanged quarter-over-quarter and up 10 basis points year-over-year. Net absorption remained positive at 18,595 sq. ft. at quarter’s end, down from 422,041 sq. ft. as of Q4 2017, although up from -7,530 sq. ft. at this time last year. No new supply was delivered to the market while the occupancy remained steady at 90.2%. Full-service asking rents rose by $0.26 per sq. ft. quarter-over-quarter to close Q1 at $22.01—an all-time high—with a much larger increase of $1.08 per sq. ft. year-over-year. San Antonio’s leasing activity dropped to 365,000 sq. ft., down from the previous quarter’s 870,000 sq. ft., and 1 million sq. ft. a year ago. The amount of space under construction ended the first quarter at 1.2 million sq. ft., including buildings that are primarily owner-occupied.
Moderate job growth in San Antonio
The San Antonio economy continued to grow at a steady pace in February. Economic indicators, such as the San Antonio Business-Cycle Index, grew slightly above its long-term trend at an annualized 3.4%. Job growth was moderate, increasing at a 2.9% annualized rate over the three months through February, with increases in construction, mining, and manufacturing. San Antonio’s population grew by 2.0% in 2017, similar to 2016 and near its long-term average of 2.1%. The unemployment rate increased slightly to 3.4% in February as the Texas and U.S. rates held steady at 4.0% and 4.1%, respectively.
Vacancy rate flat in Q1 following end of 2017
The total vacancy rate for the San Antonio office market remained flat during the first quarter of 2018, at 9.8%, and just a tad up from this time last year at 9.7%. Overall vacancy in the suburban office market was also flat quarter-over-quarter, while Class A was up slightly, and Class B edging down. The Central Business District saw overall vacancy shrink 30 basis points to 8.4%, Class B down 10 basis points to 8.8%, and Class A down 100 basis points to 9.9% from 10.9% this time last quarter. There is approximately 2.5 million sq. ft. of Class A inventory tracked in 12 buildings located in the San Antonio CBD. The full-service average asking rent is $26.81 per sq. ft. as of Q1 2018. With projects like Frost Tower; the expansion of the River Walk; the Pearl Brewery redevelopment; and the commitments to the growth of the convention center and Hemisphere Park, the revitalization of San Antonio’s downtown continues apace.
Frost Tower on schedule to open early 2019
There is 1.2 million sq. ft. of space under construction in the San Antonio office market, with about 535,000 sq. ft., or 43% available for lease. The 462,000-sq.-ft. Frost Tower at 111 W. Houston, is on track and set to deliver in the first quarter of 2019. When completed, the tower will be the new headquarters for Cullen/Frost Bank. The high-rise is currently 63% leased and will serve as an iconic addition to the downtown skyline of San Antonio. Although there were no new buildings delivered to the market in the first quarter of 2018, 665,000 sq. ft. is scheduled to be completed this year. With the additional Class A space arriving on the market, rental rates should continue to push upwards.
Net absorption sluggish
San Antonio ended the first quarter of 2018 with 18,595 sq. ft. of net absorption. Class A space represented -20,344 sq. ft. of that total, and Class B tallied 58,675 sq. ft. Tenants moving out of space in 2018 included Cima Hospice vacating 21,650 sq. ft. at Network Tech Center – Building B; and Lawboss leaving 19,690 sq. ft. at One Castle Hills. Tenants moving into space during the same time period involved Guadalupe-Blanco River Authority taking 25,795 sq. ft. at 933 E Court St.; Champion Group occupying 20,000 sq. ft. at 4416 Lockhill Selma Rd.; and DeZavala-Shavano Veterinary Clinic moving into 20,000 sq. ft. at 4408 Lockhill Selma Rd.
Investment sales activity
Real Capital Analytics data reports office sales volume for the prior 12 months as of March 31, 2018 in the San Antonio area at $100.1 million, resulting in a year-over-year change of -31%. The buyer composition is primarily institutional at 62% and the remaining balance private, at 38%. The most significant transaction during 2018 for the San Antonio office market was the acquisition by Entrada Partners, 151 Technology Center (Bldgs. A & B) at 1560 Cable Ranch Road.; two-story office buildings with a combined 122,975-sq.-ft., from Peloton Commercial RE. The properties were built in 1984 in the Far West submarket, with a sale price of $15.2 million ($124 per sq. ft.).
Leasing activity slows down
Leasing activity decreased during the first quarter with a total of 365,000 sq. ft. leased in the overall San Antonio market, a drop of about 500,000 sq. ft. from last quarter. This is in comparison to 1 million sq. ft. leased this time last year. This drop in activity follows the almost 1.4 million sq. ft. of product delivered to the market in 2017, and a slowdown of tenants moving into space during Q1 2018. Tenants signing lease agreements in 2018 included the 10,535-sq.-ft. lease signed by Payment Data Systems at John Yantis Center at 3611 Paesanos Parkway; the 10,014-sq.-ft. deal signed by Conceptual Mind Works at Acropolis Building in Shavano Park; and the 9,628-sq.-ft. lease signed by Espey & Assoc. PC at IBC Bank Building at 12400 San Pedro Ave.
Rental rates continue gradual climb
Full-service asking rents rose by $0.26 per sq. ft. quarter-over-quarter to close Q1 at $22.01. Class A direct rates saw an increase of $0.29 at $25.73 per sq. ft. quarter-over-quarter, compared to Q1 2017 at $24.85 per sq. ft., while Class B direct rates rose to $20.07 per sq. ft. quarter-over-quarter, a $0.50 increase. Concessions such as free rent and tenant improvement allowances remain attractive incentives to help draw users to available space.
Director of Research
tel 713 275 9618