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Old Posted Aug 9, 2019, 9:45 PM
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WOW! San Antonio's total office inventory now sits at 60.3 million square feet.

Ryan Salchert – Reporter,
San Antonio Business Journal

Local office space absorption negative for second quarter in a row

San Antonio's office vacancy increased slightly during the second quarter — another quarter of negative net absorption.

Total vacancy rose 20 basis points during the recent quarter to 10.7% from 10.5% during the first quarter, according to the latest office report by NAI Partners. Year over year, vacancy rose by 50 basis points from 10.2%. The vacancy rate has remained between 9% and 11% for 23 consecutive quarters, or since fourth quarter 2013. Overall vacancy in the suburban office market was 11%, while vacancy downtown was 8.9%. Downtown San Antonio has 2.5 million square feet of Class A space across 12 buildings, according to NAI Partners, with 193,000 square feet of vacant space, or 7.7%.

There is about 9 million square feet of medical office space in San Antonio, representing 14.8% of the total office market. The overall vacancy rate for medical office space is 17%.

Despite deliveries falling from first quarter, absorption was negative during the second quarter. San Antonio's net absorption was negative 2,504 square feet, an improvement from first quarter's negative 35,044 square feet. Year over year, net absorption was down from 19,838 square feet. Total net absorption consisted of positive 111,028 square feet of Class A space leased and negative 125,472 square feet of Class B space leased. Overall absorption has been negative for three out of the last four quarters. Total leasing activity has been steadily falling since second quarter 2018, which saw 900,541 square feet leased, compared to 594,008 square feet leased in the recent second quarter.

Space under construction as of the second quarter stood at 1.6 million square feet, down slightly from first quarter's 1.7 million. Half of the new space being built is spoken for. Deliveries shrunk slightly to 176,125 square feet from 192,000 square feet in the first quarter, but rose year-over-year from 166,974 square feet. San Antonio's total office inventory now sits at 60.3 million square feet.

Full-service gross asking rents rose for another quarter in a row to $23.14 per square foot from $22.38 per square foot during the first quarter. Average rents are up by more than a dollar year over year. Class A space averaged $27.39 per square foot during the quarter, while Class B space averaged $20.74 per square foot. The highest average rate was $36.06 per square foot for downtown Class A space.

Office sales volume during the second quarter was $38.6 million, according to Real Capital Analytics. This is compared to $163.8 million a year ago. The primary capital composition for buyers in 2019 has consisted of 80.8% private and 17.2% institutional. For sellers, the majority has been 72.8% private and 23.3% institutional. The largest office acquisition during the second quarter was by a Dallas-addressed entity called Mercury SA LP, which bought the 140,720-square-foot Broadway Title building at 10010 San Pedro Ave. at auction for $12.7 million.

On the leasing side, the quarter's biggest deal was done by WeWork Companies Inc., which leased 75,000 square feet on the top two floors of the Grant Building and the top four floors of the Kress Building downtown. This deal is also the largest office lease seen in San Antonio since the beginning of the year. WeWork plans to occupy the space by 2020, having about 1,105 members locally when it opens. A few of San Antonio's other largest leases during 2019 include a renewal for Baptist Health System School on 66,263 square feet, a 51,833-square-foot lease by GreatCall on the Far West Side and a 37,300-square-foot lease by Clear Channel Outdoor.
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