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The overall vacancy rate in the San Antonio office market was up 20 basis points quarter-over-quarter, and up 40 basis points year-over-year.
Vacancy rate at 10.4%
The overall vacancy rate in the San Antonio office market was up 20 basis points quarter-over-quarter, and up 40 basis points year-over-year. The vacancy rate for Class A properties is at 12.0%, and Class B at 10.0%. In the second quarter, overall net absorption was positive at 16,300 sq. ft.—Class A represented 18,000 sq. ft. and Class B tallied negative 2,300 sq. ft. Of the 1.7 million sq. ft. currently under construction, 67.3% of that space has been spoken for. Of the 310,000 sq. ft. completed in 2020, 72.2% is available for lease. The overall San Antonio average asking full service rent is at $23.43 per sq. ft.—up from Q2 2019 at $22.52 per sq. ft.—while Class A space in the Central Business District is averaging $35.77 per sq. ft.
The Federal Reserve Bank of Dallas reported that San Antonio’s metro unemployment rate ticked down to a still-elevated 11.8% in May, lower than the state and national rates of 13.0% and 13.3%, respectively. Despite employment growth in May, San Antonio net jobs declined an annualized 28.3% in the three months ending in May. All sectors experienced losses. The leisure and hospitality sector shed the most jobs at an annualized 73.5% (-40,520 jobs, not annualized). The health and education services fell 33.8% (-16,840 jobs) and professional and business services declined 23.1% (-9,170 jobs). Since early May, consumer spending (measured by credit and debit card spending) in San Antonio has improved more than in the state. However, as of mid-June, spending in San Antonio was down 6.9% relative to January 2020.
CBD Class A vacancy at 14%
The CBD has 3.2 million sq. ft. of Class A inventory tracked in 15 buildings with 445,000 sq. ft. of vacant space (14.0%) as of Q2 2020. Class A vacancy in the suburban office market was at 12.0%, while overall vacancy in the CBD registered at 9.5%. There is approximately 9.2 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 16.5%, up from 16.1% 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.
H-E-B plans to build a 10-level parking garage
Adjacent to their headquarters campus, H-E-B is planning to build a 10-level parking garage. The campus will include 10,000 sq. ft. of office space at 641 S. Flores St., next to H-E-B’s three-story culinary school. The garage is planned to accommodate 928 vehicles and will provide a pedestrian bridge across South Flores connecting it to the grocer’s campus with accessibility from the offices to the street level. In addition, another project at H-E-B’s campus is a 170,000-sq.-ft. tech center with features comparable to the company’s Austin tech hub.
Walker Ranch Business Park breaks ground
The two-building, 135,000-sq.-ft. office park is located on 10.8 acres at the corner of Wurzbach Parkway and West Avenue in the city’s North Central submarket near the airport. Walker Ranch will include a 58,000-sq.-ft., two-story office building, and a second building with 78,000 sq. ft. of flex office space. The flex building will deliver in Q1 2021 and the office building in the second quarter of 2021. Worth & Associates acquired the land from Coker United Methodist Church in January 2020, according to county records.
Investment sales activity
Real Capital Analytics data reports the second quarter sales volume for San Antonio office properties was $53.2 million compared to second quarter 2019 at $60.2 million. The primary capital composition for buyers year-to-date 2020 was made up primarily of private investors at 75.7%, and 16.7% institutional investors. For sellers, the majority was 65.8% private and 17.5% user/other investors. A significant transaction that took place during the second quarter was the sale of a 58,574-sq.-ft. fully leased office building at 2049 Sundance Parkway in New Braunfels. CoStar reported that the investment property sold for $17,075,000, or $291.51 per sq. ft. The Class A office building is fully leased to PNC Bank.
The volume of square footage signed during the second quarter—which is comprised of both new leases and renewals—was at 324,000 sq. ft.—down from the previous quarter’s 619,000 sq. ft., and 997,000 sq. ft. this time last year. Over half the leasing activity took place in the North Central submarket. WebTPA Employer Services signed a sublease deal for 29,486 sq. ft. in Ridgewood Park; Texas Utility Engineering renewed their lease for 14,835 sq. ft. at 7420 Blanco Road; and IES Engineering inked a deal for 6,593 sq. ft. at 1045 N. Central Parkway.
Average asking rents
The San Antonio overall full-service average rates are at $23.43 per sq. ft., an increase year-over-year from $22.52 per sq. ft. Asking rates for Class A space are averaging $27.72 and Class B are averaging $21.11 per sq. ft. Rent growth has varied across San Antonio’s submarkets. Many submarkets saw asking rates increase or remain the same, while some saw decreases. Office tenants may have more leverage with regards to negotiating rental rates, terms, tenant improvements and concessions than they have had in the past. However, since the market was healthily prior to the current situation, the relative impact to occupancies and rents in the future is uncertain.
Director of Research
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