New Breed of Millennials, Adaptive Reuse Drive San Antonio’s Office Market
Would you believe that San Antonio is the second most sought-after city for millennials?
According to local media pundits and reports from Forbes, San Antonio is attracting the greatest number of millennials of any city in Texas, even beating out Austin, the original yuppie capital of the state.
San Antonio, which had taken a back seat to Austin in terms of creating tech jobs and drawing millennial workers, has surged ahead in recent years. The metro has begun to appeal to a different breed of people born between 1980 and 1999. We refer to members of this group as the “logical millennials.”
While entrepreneurial in spirit, the San Antonio millennial differs from the standard millennial through his or her understanding of the need for affordable housing and a lower cost of living.
The influx of this sub-type of millennials has created growth in urban areas, most notably the Pearl District, which is situated adjacent to the downtown area.
The popularity of this mixed-use shopping and community destination has spurred the development of a number of new urban lifestyle projects.
Frost Tower, Rising Rents
Another indicator of San Antonio’s success at attracting a younger demographic is embodied in the most significant change to our downtown skyline in the last 30 years: the 23-story Frost Tower building in the CBD. The property, which is under construction in the heart of downtown at Houston and South Flores streets, will combine 430,000 square feet of office space with 20,000 square feet of ground-floor retail space. The property will also feature 10,000 square feet of tenant amenity space, including a lounge and fitness center.
When you stop to think about it, however, it makes sense that San Antonio is becoming a sought-after city. The national press has given strong attention to the metro’s population growth and low unemployment rate, which has most notably translated into strong growth in IT and related sectors. The establishment of live-work-play projects throughout the urban core has also bolstered the city’s appeal to young professional workers.
San Antonio also boasts a lower cost of living than Austin, a key incentive for companies looking to move or expand their corporate campuses. Consequently, the office market currently finds itself entering relatively uncharted territory, with new developments being announced quite regularly.
Between these trends and the general spirit of entrepreneurship and sound research that local leaders have created, the office market is now facing fantastic real estate opportunities.
San Antonio had the largest percent increase in office rents in the nation in 2017, yet rates remain lower than those in other markets of this size. Most new buildings being developed throughout the urban corridor and downtown are approaching rent levels of larger markets. The entry of this newer product is also changing the traditional base rent to triple net structures.
Recently, some of the Class A buildings in the downtown area have been purchased by a large, locally based REIT. This activity is creating opportunities for office-using tenants and developers as they move more than 2,000 employees downtown to occupy portions of the buildings.
The pace and volume of office construction have also risen. There are numerous buildings being built, redeveloped or repurposed in the downtown area and the urban corridors, which is creating different options for office users. Companies now have the option to move into newer or redeveloped buildings that offer more walkable amenities and dining options for lunch or after-work drinks with colleagues.
The Hixon/Cavender building represents a good example of this trend in action. This project centers around repurposing a portion of the site, which previously housed an automotive dealership, into a mixed-use complex consisting of 125,000 square feet of office space and 15,000 square feet of ground-level retail space.
The Hixon/Cavender building will be the first office building in Texas to feature a sustainable design built on a mass timber structural system in lieu of concrete or steel. The property will have exposed wood ceilings along with technology running along all the ducting and conduits under the floors. This project, along with three other office properties that are currently being repositioned, should be available for occupancy by 2020.
These mixed-use projects should complement other dynamic changes occurring in and around the Broadway Corridor by bringing workers, consumers and potential residents to the area. The Witte Museum and the San Antonio Zoo, which are working to create a cultural corridor along the key north-south street, could also benefit from several developments.
The future is bright for San Antonio, as our affordability continues to enable us to attract a young, educated workforce. We are no longer an underdog, but a frontrunner when it comes to drawing logical millennials seeking a better place to live, work and play.
— By David Ballard, CCIM, Partner, Reata Real Estate Services. This article originally appeared in the March 2018 issue of Texas Real Estate Business magazine.