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The overall vacancy rate in the San Antonio office market was up 50 basis points quarter-overquarter, and up 60 basis points year-over-year.
Vacancy rate at 10.2%
The overall vacancy rate in the San Antonio office market was up 50 basis points quarter-over-quarter, and up 60 basis points year-over-year. The vacancy rate for Class A properties is at 12.0%, and Class B at 10.1%. In the first quarter, overall net absorption was in the red at negative 208,865 sq. ft.—Class A represented negative 11,475 sq. ft. and Class B corresponded to negative 152,099 sq. ft. Of the 1.5 million sq. ft. currently under construction, about 57% of that space has been spoken for. Of the 188,000 sq. feet completed in 2020, all is available for lease. The overall San Antonio average asking full-service rent is at $23.25 per sq. ft.—up from Q1 2019 at $22.33 per sq. ft.—while Class A space in the Central Business District is averaging $35.88 per sq. ft.
The Federal Reserve Bank of Dallas reported that San Antonio’s economy grew at a stable pace in February. The San Antonio Business-Cycle Index continued to expand above its long-term average. The unemployment rate declined slightly, and job growth remained steady at a healthy pace over the three months through February. Wages continued to climb, and home sales prices fell. While most data have not captured the impact of the coronavirus outbreak, recent stock prices of San Antonio-based companies show moderate recoveries following sharp declines in February and early March.
CBD Class A vacancy at 10.5%
The CBD has 3.0 million sq. ft. of Class A inventory tracked in 14 buildings with 300,000 sq. ft. of vacant space (10.5%) as of Q1 2020. Overall vacancy in the suburban office market was at 10.5%, while overall vacancy in the CBD registered at 8.2%. There is approximately 9.4 million sq. ft. of medical office space in the San Antonio area, representing 15% of the 62 million sq. ft. of total office inventory. The overall vacancy rate for medical office space is 16.9%, up from 15.7% in the prior period.
The coronavirus outbreak
With a considerable amount of the economic growth of the San Antonio metro tied to the leisure and hospitality job sector, growth will likely suffer across the Alamo City. The path both the San Antonio economy and its office market sector take will depend on how widely the virus spreads and how long social distancing needs to be maintained. Prior to the coronavirus outbreak, San Antonio had strong economic momentum, and the current statistics largely reflect the environment before the pandemic.
Investment sales activity
Real Capital Analytics data reports the first quarter sales volume for San Antonio office properties was $98.1 million compared to first quarter 2019 at $88.8 million. The primary capital composition for buyers in Q1 2020 was made up almost entirely of private investors at 96.6%. For sellers, the majority was 62.9% private and 37.1% user/other investors.
The volume of square footage signed during the first quarter was at 527,000 sq. ft.—down slightly from the previous quarter’s 579,000 sq. ft. A significant lease signed in Q1 2020 is the Goodwill San Antonio Business Services deal signed for 42,227 sq. ft. of office space in the Northeast submarket at 2735 Austin Highway. Goodwill will use the space to expand contact center operations and will house 200 employees.
San Antonio’s office market vacancy rate sits at 10.2% as of Q1 2020. With additional space likely coming available in San Antonio, larger office tenants will have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements, and concessions. Disruptions from COVID-19 will also have an impact on commercial real estate landlords and tenants as difficult decisions are made to adapt to these sudden changes. Many small tenants—particularly retail tenants—have seen revenue drop 50% to 100% in some cases and simply can’t pay their rent. For companies that qualify, the CARES Act recently passed by Congress provides at least two months’ rent and wage relief for companies of 500 employees or less; landlords—many of which are also struggling, as they receive multiple rent relief requests while still having to pay property expenses and mortgage payments—expect tenants who are able to do so to apply for these funds in order to pay rent.
Director of Research
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