san antonio office | q3 2018 quarterly market report · 2018-12-21 · market overview vacancy rate...

SAN ANTONIO OFFICE | Q3 2018

Quarterly Market ReportOCTOBER 2018

HOUSTON | AUSTIN | SAN ANTONIO

Market Indicators

Current Q3 2018

Prior Quarter Q2 2018

Year Ago Q3 2017

Vacancy Direct 9.8% 9.9% 10.0%

Vacancy Total 10.0% 10.2% 10.2%

Availability Direct 11.9% 12.0% 12.6%

Availability Total 12.4% 12.5% 13.2%

Net Absorption (SF) 85,266 92,206 33,830

Leasing Activity (SF) 671,296 623,745 862,035

Construction (SF) 1,155,683 1,026,907 1,268,195

Deliveries (SF) 0 108,442 264,702

Avg Asking Rent (Gross) $22.35 $22.24 $21.98

Inventory (SF) 58,353,415 58,353,415 57,869,633

EXECUTIVE SUMMARYSan Antonio office market hits record high for rents

Full-service asking rents rose by $0.11 per sq. ft. quarter-over-quarter to close Q3 at $22.35—an all-time high—with an increase of $0.37 per sq. ft. year-over-year. San Antonio’s overall vacancy rate was 10.0% ending Q3 2018, down 20 basis points quarter-over-quarter and year-over-year. Net absorption remained positive at 85,266 sq. ft. at quarter’s end, down from 92,206 sq. ft. as of Q2 2018, although more than double the 33,830 sq. ft. recorded at this time last year. There was no new supply delivered to the market during the third quarter while occupancy remained tight at 90.0%. San Antonio’s leasing activity remained steady at 671,296 sq. ft., up 48,000 sq. ft. from the previous quarter, although down from 862,035 sq. ft. a year ago. The amount of space under construction ended the third quarter at 1.2 million sq. ft., including buildings that are mostly owner-occupied.

Moderate economic growth in July

The San Antonio economy remained steady in July. Economic indicators, such as the San Antonio Business-Cycle Index increased at a 2.5% annualized rate in July, up from June’s 1.7%. Job growth increased at a 0.4% annualized rate over the three months through July, with health care employment rising but leisure and hospitality employment dropping. Other services and mining grew at a vigorous pace, while the remaining private services sectors were flat or lost jobs. The unemployment rate fell to 3.2% in July, significantly below the Texas rate of 4.0% and the U.S. rate of 3.9%.

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Supply & Demand

www.naipartners.com/sanantonio

MARKET OVERVIEWVacancy rate drops quarter-over-quarter

The total vacancy rate for the San Antonio office market dropped 20 basis points in the third quarter of 2018 to 10.0%, compared to this time last quarter and last year. Overall vacancy in the suburban office market was also at 10.0%, while San Antonio’s Class A space registered at 13.1%, and Class B lower at 9.1%. The CBD has 2.5 million sq. ft. of Class A inventory tracked in 12 buildings with 300,000 sq. ft. of vacant space in Q3. The full-service average asking rent for Class A space downtown is at $31.84 per sq. ft., up $1.52 per sq. ft. from $30.32 last quarter.

San Antonio fifth-ranked in construction growth

After decades of waiting, a surge of new office development is in the future for San Antonio—in fact, PlanGrid, a developer of construction industry software, ranked San Antonio fifth in the nation in construction growth. The ranking is based on the city’s anticipated 13% growth in projects, and an additional 9% increase in local construction employment growth this year. There is currently 1.2 million sq. ft. of space under construction in the San Antonio office market, with about 451,000 sq. ft., or 39% 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. In addition, CPS Energy awaits the completion of its new headquarters at 520 McCullough Ave. The $150 million redevelopment will include 430,000 sq. ft. of office space in two towers that will be home to 1,200 of its employees. The towers, built around 1980, previously served as offices for AT&T and as the headquarters of Valero Energy Corp. As CPS Energy prepares to move in 2020, the company has put its current headquarters up for sale at 145 Navarro St. Included are a garage and office space across Navarro St.; the Tower Life garage; a parking lot on Navarro and Villita Streets; and the Villita Assembly Building on Presa and Villita Streets. It is reported that these properties add up to more than $46 million in assessed value.

Local developer trades NW office building

Real Capital Analytics data reports the rolling 12-month office sales volume as of August 2018 in the San Antonio area at $416.0 million, resulting in a -19.0% change. The buyer composition in 2018 is made up of 60% private and 39% institutional. A recent significant transaction for the

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Quarterly Market Report



San Antonio office market was the acquisition by Boyd Watterson Asset Management of the Trinity Building in the Brass Professional Center at 4204 Woodcock Dr. for a reported $7.6 million, or $113.16 per sq. ft. Local developer Brass sold the 66,721-sq.-ft. office building that was built in 1982. The city of San Antonio is one of the Trinity Building’s anchor tenants.

Leasing activity remains steady

Leasing activity increased slightly during the third quarter with a total of 671,000 sq. ft. leased in the overall San Antonio market, an increase of 48,000 sq. ft. from last quarter. This is in comparison to 862,000 sq. ft. leased this time last year. Much of office tenancy in San Antonio is driven by the medical, military, cybersecurity, and biotech industries. Recent lease signings include Next Oncology inking an 11-year, 19,948-sq.-ft. lease in Medical Center Tower I within the Christus Santa Rosa Campus. The space will serve as a Phase 1 cancer research center and treatment practice for advanced cancer patients. Additional tenants recently moving into space include Spectrum, taking 75,672 sq. ft. at Oaks at University Business Park in the northwest submarket; WeWork opening a new location in the Kress Building in downtown taking up 64,531 sq. ft. on five floors at 315 E Houston St.; and ParkHurst NuVision, a cataract surgery center, signed a 29,000-sq.-ft. lease within a two-story office building located at 9725 Datapoint Dr. in northwest San Antonio. The current leasing activity follows 108,000 sq. ft. of product delivered to the market in 2018 and 85,266 sq. ft. of positive net absorption ending the third quarter of 2018. Class A space represented 180,000 sq. ft. of that total, while Class B registered -156,000 sq. ft.

Sky-high prices for quality office space

The price of San Antonio’s downtown Class A office space is climbing noticeably as demand grows, vacancy shrinks, and the development pipeline explodes. 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. The five buildings with the majority of available Class A office space in the CBD include Frost Tower, Weston Centre, Bank of America Plaza, Rosa Verde Plaza, and Travis Park Plaza. These four existing buildings, and one under construction comprise 1.3 million sq. ft. with 25.0% or 467,000 sq. ft. available for lease. In the third quarter of this year, the average asking full-service gross rate for space in these buildings was $34.11 per sq. ft. – the highest ever in this market.

Leasing Activity

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$26.60

$22.94

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Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018

Class A Direct Class A Sublease Class B Direct Class B Sublease

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San Antonio Office Cumulative Monthly Sales VolumeSource: Real Capital Analytics


MARKET OVERVIEWSubmarket Stats

Total Inventory (SF)

Total Vacancy

(%)

Total Availability

(%)

Q3 2018 Net

Absorption (SF)

2018 YTD Net

Absorpiton (SF)

Q3 2018 Leasing Activity

(SF)

Q3 2018 Deliveries

(SF)

Under Construction

(SF)

Overall Gross Avg

Asking Rent ($/PSF)

Overall Gross Avg

Asking Rent

($/PSF)

San Antonio Market Total 58,353,415 10.0 12.4 81,866 148,679 671,296 0 1,155,683 22.35

Class A 16,625,001 13.1 15.3 179,501 192,819 379,736 0 913,098 26.59

Class B 34,725,536 9.1 11.5 -155,791 -125,583 265,662 0 242,585 20.23

Total Inventory (SF)

Total Vacancy

(%)

Total Availability

(%)

Q3 2018 Net

Absorption (SF)

2018 YTD Net

Absorpiton (SF)

Q3 2018 Leasing Activity

(SF)

Q3 2018 Deliveries

(SF)

Under Construction

(SF)

Overall Gross Avg

Asking Rent ($/PSF)

Overall Gross Avg

Asking Rent

($/PSF)

CBD Total 7,266,701 9.8 13.0 90,584 63,695 98,896 0 462,054 26.88

Class A 2,499,820 11.9 16.4 52,060 38,602 76,675 0 462,054 31.84

Class B 3,455,896 11.0 13.6 38,524 6,354 27,608 0 0 19.64

North Central Total 15,841,825 11.4 14.1 -63,919 27,989 246,210 0 242,154 23.32

Class A 5,966,335 11.7 14.4 56,339 106,173 160,038 0 174,154 26.95

Class B 8,299,797 12.6 15.7 -117,218 -71,760 85,169 0 68,000 21.29

Northeast Total 5,104,430 13.4 13.4 -23,401 3,792 16,486 0 192,000 20.30

Class A 926,430 22.9 20.3 -15,655 -15,039 2,838 0 192,000 25.60

Class B 3,116,172 9.2 9.3 -2,781 8,193 12,393 0 0 19.43

Northwest Total 28,207,304 8.6 11.2 66,666 20,003 301,689 0 259,475 20.95

Class A 6,988,286 12.5 14.4 82,166 55,926 135,594 0 84,890 24.41

Class B 18,724,531 7.3 9.8 -76,116 -83,668 137,068 0 174,585 19.42

South Total 1,933,155 10.8 10.4 11,936 33,200 8,015 0 0 19.70

Class A 244,130 35.8 29.5 4,591 7,157 4,591 0 0 -

Class B 1,129,140 7.3 7.8 1,800 15,298 3,424 0 0 15.65

Suburban Total 51,086,714 10.0 12.3 -8,718 84,984 572,400 0 693,629 21.79

Class A 14,125,181 13.3 15.1 127,441 154,217 303,061 0 451,044 25.57

Class B 31,269,640 8.9 11.3 -194,315 -131,937 238,054 0 242,585 20.29

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Information and data within this report were obtained from sources deemed to be reliable. No warranty or representation is made to guarantee its accuracy. NAI Partners’ quarterly report for the San Antonio of f ice market includes information and data for Class A, Class B and Class C buildings—20,000 sq. f t. and up—for all of f ice property types (including leasable medical space in of f ice buildings). Owner-occupied buildings are excluded.

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1. CBD2. North Central3. Northeast4. Northwest5. South

MARKET OVERVIEWSan Antonio Office Submarkets

1. CBD

2. North Central

3. Northeast

4. Northwest

5. South


Quarterly Market ReportOCTOBER 2018

NAI Partners San Antonio Office1020 NE Loop 410, Suite 810San Antonio, Texas 78209

tel 210 446 3655



Leta WausonDirector of Research

[email protected] 713 275 9618


san antonio office | q3 2018 quarterly market report · 2018-12-21 · market overview vacancy rate...

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