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San Antonio Commercial Real Estate Office Market Data and Economic Information - San Antonio Commercial Real Estate Office Market Data and Economic Information - Farinon Office Park Northwest San Antonio

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EXECUTIVE SUMMARY

San Antonio asking rates soar, reach new high

Full-service asking rents rose by $0.16 per sq. ft. quarter-over-quarter to close Q4 at $22.44—an all-time high—with an increase of $0.78 per sq. ft. (3.6%) year-over-year. San Antonio’s overall vacancy rate was 9.9% ending 2018, down 10 basis points quarter-over-quarter and 20 basis points year-over-year. Net absorption remained positive at 87,412 sq. ft. at quarter’s end, down from 197,872 sq. ft. as of Q3 2018, and down from the 398,849 sq. ft. recorded at this time last year. There was 22,000 sq. ft. delivered to the market during the fourth quarter, while occupancy remained tight at 90.1%. San Antonio’s leasing activity stood at 478,954 sq. ft., down from 1 million sq. ft. the previous quarter, and 918,690 sq. ft. a year ago. The amount of space under construction ended 2018 at 1.5 million sq. ft., including buildings that are primarily owner-occupied.

Moderate economic growth in November

Growth in the San Antonio economy was moderate in November. The San Antonio unemployment rate was unchanged at 3.2%, notably lower than the Texas and U.S. rates of 3.7%. Jobs in San Antonio grew 2.7% during the three months ending in November, with the mining sector continuing to add jobs at a strong rate, increasing by 7.1% in the past three months. The manufacturing and leisure and hospitality industries also experienced substantial job increases, adding approximately 900 and 3,150 jobs, respectively. Employment growth in construction, information and other services sectors were reduced during this period.

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

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


MARKET OVERVIEW

Vacancy rate continues to tighten

The total vacancy rate for the San Antonio office market dropped 10 basis points in the final quarter of 2018 to 9.9%, compared to this time last quarter and last year at 10.1%. Overall vacancy in the suburban office market was at 10.1%, while overall vacancy in the CBD registered at 8.2%. The CBD has 2.5 million sq. ft. of Class A inventory tracked in 12 buildings with 240,000 sq. ft. of vacant space as of Q4 2018. The full-service average asking rent for Class A space downtown is at $31.10 per sq. ft., while Class B space is at $21.02 per sq. ft.

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

More office space construction in Northwest submarket

There is currently 1.5 million sq. ft. of space under construction in the San Antonio office market, with about 543,000 sq. ft., or 35% available for lease. In the Northwest submarket, local developer Worth & Associates broke ground on the final phase of Farinon Business Park. Farinon Business Park III will be a two-story, 84,890-sq.-ft., Class A office building located at 5818 Farinon Drive just west of Interstate 10. The scheduled completion date is August 2019. In the CBD, 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, with a reported move-in date by the end of 2019. The high-rise is currently 63% leased and will serve as an iconic addition to the downtown skyline of San Antonio.

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

Investment sales activity accelerates in 2018

Real Capital Analytics data reports year-to-date office sales volume for 2018 in the San Antonio area at $777.7 million. The fourth quarter sales volume was $330.9 million compared to fourth quarter 2017 at 249.8 million, resulting in a year-over-year quarterly volume change of 32.5%. The primary capital composition for buyers in 2018 was made up of 51.0% private, and 17.9% institutional. For sellers, the majority was 35.8% institutional, and 30.7% private. In December Spire Realty Group LP purchased the 126,626-sq.-ft. Lockhill Crossing office building at 4630 N. Loop 1604 W. in Shavano Park. The building was sold by Stream Realty Group, which developed the five-story, Class A office building in 2014. Spire Realty is reported to have bought more than 260,000 sq. ft. of office space in San Antonio in 2018.

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

Leasing activity

The volume of square footage signed during the fourth quarter was 479,000 sq. ft., down about 50% compared to both the previous quarter’s 1.0 million sq. ft., and 919,000 sq. ft. from this time last year. A few of the metro’s largest leases signed during Q4 2018 include a sublease for Pima Medical Institute (59,476 sq. ft.) in the Northwest submarket, Breakaway Practice (41,275 sq. ft.) in the Northwest submarket, Booz Allen Hamilton’s renewal (22,168 sq. ft.) in the CBD, and The LYND Company’s renewal (19,545 sq. ft.) in the Northwest submarket.

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

Office market rents continue to rise

The price of San Antonio’s office space is climbing noticeably as demand grows, vacancy shrinks, and the development pipeline skyrockets. This is the result of the many investors, developers, companies, and educational institutions with a vision for the future of the Alamo City. The highest-quality space, with the best location, and ease of accessibility will yield the highest rents. As a market indicator, concessions such as free rent and tenant improvement allowances make posted rents less meaningful as net effective rents can drop significantly once negotiations begin. All said, in order to maintain these high rent rates, concessions remain elevated throughout the market.

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

Full-service asking rents rose by $0.16 per sq. ft. quarter-over-quarter to close Q4 at $22.44. Class A rates saw an increase of $0.48 at $26.61 per sq. ft. quarter-over-quarter, and a significant rise took place from a year ago when Class A average rates were at $25.31, an increase of $1.87 (7.4%). Class B rates rose to $20.41 per sq. ft. quarter-over-quarter, a $0.28 increase, and year-over-year an $0.86 gain. With the top-dollar renovations, company relocations, and new Class A buildings being constructed, tenants appear to be willing to pay higher rental rates.

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


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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