Office Developers Are Bullish on San Antonio’s Suburban Markets
Today, San Antonio’s downtown office market gets the most media exposure because new office development was nonexistent since the late 1980s and is recently picking up speed with the Pearl office buildings and Frost Tower. San Antonio’s low cost of doing business and strong population growth should lead to continued expansion in the office market citywide.
What isn’t getting the attention is the fact that new development in the suburbs is still holding strong. Many companies expanding or moving here find suburban properties to be attractive options, as these buildings frequently offer larger, more efficient floor plates, which can help investors extend their dollars.
Parking availability alone gives the suburbs a major advantage over downtown properties, where parking ratios are considerably lower and premium parking and higher ratios are charged to tenants or their employees.
Why the Suburbs?
Office investors and users alike are finding the suburbs to be comparable to those in the central business district, but at much lower occupancy costs per employee. Case in point: CBD asking rents for new office space range from $32 to $42 per square foot on a triple-net basis with minimal parking while those in the suburbs range from $24 to $30 per square foot on a triple-net basis inclusive of parking.
Businesses looking to lease in suburban markets want fresh, new, energy-efficient product wired for the latest technologies. They want large floor plates and upscale amenities such as fitness centers and onsite eateries, as well as convenient access to major arteries, inviting settings and walkability to parks.
In general, these companies are also seeking office space in areas with executive/mid-range housing nearby to shorten commutes for themselves and their employees. Lastly, they are looking for excellent schools and plenty of retail, restaurant and entertainment.
To fill the needs of suburban tenants, commercial real estate firms are developing three main products — single-story/flex office, large floor plate mid-rises and move-in-ready office suites that offer flexibility for tenants with high-growth ambitions and needs.
Who’s Moving to the ‘Burbs?
San Antonio continues to be an attractive destination for companies wanting to grow or relocate their operations. Several high-profile companies have located to our suburbs recently or are planning to do so.
In February 2019, Clear Channel Outdoor leased 31,096 square feet at the Pinnacle Oaks Tech Center along Loop 1604 West. The company chose the location for its short commutes, ample parking, room for growth and proximity to amenities.
Pentagon Federal Credit Union (PenFed) recently purchased a 20-acre campus on Bulverde Road north of Loop 1604 for its new operations center. PenFed chose San Antonio because 54 percent of the total military population resides in San Antonio and veterans comprise nearly 10 percent of our population.
Airrosti recently leased 44,000 square feet and moved its San Antonio headquarters to Hill Country Village on U.S. Highway 281, and Linebarger, Goggan, Blair & Sampson LLP leased 30,000 square feet at Inwood Heritage Oaks III along Loop 1604 for its IT and HR divisions.
A number of new suburban office projects have been developed in the last three years and have proven that there is demand for Class A space. Lockhill Crossing, Landmark One, Vista Corporate Center, Westridge II, RidgeWood Plaza and Farinon Business Park II have all scored expansions or relocations from high-profile tenants such as USAA, Ernst & Young (EY), RSM, Methodist Healthcare and Santikos Entertainment.
Stream Realty and ALC Partners both have new multi-story office buildings that are proposed for the Northwest submarket. Worth is also expanding its footprint in that market as well as in the North Central submarket.
In the northwest, we are constructing Farinon Business Park III, due to the demand we have received from building Farinon Business Park II, which is home to Ernst & Young (EY). EY selected Farinon primarily for its proximity to the pipeline of young financial services talent coming out of the University of Texas at San Antonio.
In the North Central, we are building RidgeWood Plaza II and RidgeWood Orthopaedic Center, a medical facility for The San Antonio Orthopaedic Group (TSAOG). Both are located in RidgeWood Park, home to Marathon, EOG Resources, RSM US LLP and Tech Data. TSAOG chose the site for its high visibility and access to Loop 1604 and Highway 281.
Inwood Village, our recently completed Class A office building, provides move-in ready office suites that allow smaller tenants to open for business on day one.
An Eye to the Future
Although the vacancy rate has risen slightly to 9.8 percent in recent months, rents have continued their overall upward trend, increasing 3 percent year-over-year to a cyclical high of $26.25 per square foot, according to CoStar.
Powered by a vigorous, diverse economy, along with a highly educated and skilled workforce, San Antonio’s thriving commercial real estate market appears destined to continue growing throughout 2019.
— By Clint Worth, president of development and brokerage, Worth & Associates; and Shawn Gulley, senior vice president of leasing and acquisitions, Worth & Associates. This article first appeared in the June 2019 issue of Texas Real Estate Business magazine.