San Antonio Office Market Hits Bottom

SAN ANTONIO-Despite tenants exiting or downsizing their space in the suburbs this year, San Antonio’s commercial office market continues to be “relatively stable” with occupancy levels in the mid-80% range, according to a new market report by Dallas-based Holliday Fenoglio Fowler LP.

The overall occupancy rate in the second quarter for San Antonio’s office market was 84.9%, down 2.7% from the same time a year ago. The 22.1-million-sf market had a negative absorption of 205,105 sf during the first half of this year.

“The market seems to have bottomed out and the amount of space for sublease is stabilizing,” says Ed Frieze, research director. Still, there is 800,000 sf available for sublease on the market, about 3.6% of the total inventory, he says.

Construction has slowed considerably since 2001, when about 405,000 sf was added to the market. In the first half of this year, only 40,000 sf was added and only 83,000 sf is under construction, of which about 83% is pre-leased. “There’s not a lot in the pipeline and that’s a good thing,” Frieze stresses. “For investors, it’s a good time to look at the San Antonio market because the market is at the bottom.”

Occupancy rates drop from class A to class C. Even so, class A had a relatively steep 3.4 percentage point decline to 88.8%.

All major submarkets showed occupancy declines. The largest and tightest office district in San Antonio is the 8.4-million-sf north central sector, which had an occupancy rate of 85.9% at the end of the second quarter.

Rents have stayed flat at $17.67 per sf, largely due to the speculative development before 2001, the rising popularity of the industrial flex space and the move of several large tenants to owner-occupied buildings. The class A average rent is $20.68 per sf; class B, $16.59 per sf; and class C, $14.93 per sf.