TEXAS SNAPSHOT, AUGUST 2011

San Antonio Office Market

Sawtelle

The San Antonio office market has remained stable over the last 4 years, with most of the growth occurring along and north of Loop 1604, which has grown rapidly with new development. Comprised of more than 21 million square feet, the Northwest and North Central submarkets continue to see the largest share of new leases, including Petco, J. Crew, EOG Resources, Inc., and Chesapeake Energy.   

The citywide vacancy rate inched a little bit higher in the second quarter moving from 17.9 to 18.1 percent. This reflects the leaner operations of many businesses and the more efficient use of space by tenants. Numerous tenants who were operating in large spaces prior to the recession have drastically downsized. Examples include MCI Verizon, which occupied an entire 85,000-square-foot building and now has only 17,000 square feet and Alamo Title, which 5 years ago had 42,000 square feet, signing a lease for less than 2,000 square feet. The 55,461 square feet of negative absorption experienced by the San Antonio office market in the second quarter can also be attributed to this downsizing trend, as tenants sign smaller, short-term leases. However, Class A office space across the city posted positive numbers in the quarter, with 134,607 square feet in positive absorption and a 16.8 percent vacancy rate. 

San Antonio city government has spearheaded a campaign to revitalize the central business district (CBD) and attract business to downtown, an area that has seen several consecutive quarters of negative absorption. There is roughly 700,000 square feet of quality office space available in the CBD and activity has picked up significantly. In the second quarter, the CBD saw just 9,695 square feet of negative absorption, the lowest recorded in more than a year. This positive trend should continue during the next several months, as major announcements regarding new tenants to the CBD will be made.  

Amidst mostly stable office activity, a shift can be seen in the market, which has historically catered to small tenants with leases typically averaging less than 5,000 square feet. Trends in the last few years, however, show a shift towards larger back-office tenants, which do not require the high visibility and regional accessibility offered by central locations. Notable companies like Kohl’s (102,000 square feet), Petco (114,000 square feet), J. Crew (46,000 square feet) and VMC Consulting Inc. (35,000 square feet) are just a few of the new larger users relocating into the city, occupying more than 300,000 square feet of space. 

Along with this increased office activity has come the creation of new jobs. Kohl’s, Petco and VMC Consulting alone are expected to add nearly 2,000 jobs to the local economy. This increase has pushed the unemployment rate to 7 percent, the lowest in a year.  This trend is expected to continue, as oil and natural gas servicers that have set up shop in the Eagle Ford area are now nearing a point where they are moving toward production. Ancillary services like law firms and investors are shopping the market for Class A space in the most desirable locations, which could be a boon to the San Antonio office market strides in the second half of 2011. 

Despite the loss of tenants and jobs from companies downsizing or relocating, San Antonio’s overall office market condition remains positive. Thanks to the diversity of the San Antonio area’s economy, which is anchored by an expanding military presence and bolstered by thriving health and education service providers, the city has been able to do more than just weather the loss of white collar jobs. It had exceeded much of the nation and was recently ranked by Forbes as the fourth best large city for jobs in the nation. In an ongoing Brookings Institute study of the worldwide economic recovery, San Antonio leads the nation in economic stability and remains one of the United States’ top 20 strongest performing metropolitan areas.

— Mike Sawtelle is a first vice president with CB Richard Ellis.

©2011 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.