San Antonio Office Market Sees Measured New Development
Looking back five years ago to the outset of 2009, new construction was the hot topic in the San Antonio office market. In 2008, 12 new office buildings were completed, adding approximately 1.5 million square feet to the market. That equated to a 6 percent increase in existing office inventory, with the new product concentrated in the key Northwest and North Central office submarkets.
Of course, new development slowed considerably as the recession set in and wore on. Fast-forward to 2013, and as of press time the San Antonio office market only added 166,630 square feet of new product.
The good news, though, is that San Antonio metro employment suffered much shorter and shallower losses than other metro areas as a result of the Great Recession. What’s more, the recovery from these losses has been sharp, with nearly 58,000 jobs added since local employment hit its lowest point in 2009, or approximately three new jobs for every one lost in the local downturn.
One-third of these new jobs (or about 19,000) were created in office-using sectors such as finance, insurance and engineering. As a result, the office market is recovering, led by Class A space. The rapid decline in Class A vacancy — from a peak of almost 19 percent in 2010 to just 11.4 percent as of the third quarter of 2013 — combined with limited construction in this cycle has created a shortage of quality space.
This lack of prime space has coincided with increased interest by the business community to expand and relocate to the Alamo City. A diverse roster of firms have been lured to San Antonio since 2008, including Medtronic, Petco, Kohl’s, EOG Resources, Chesapeake Energy, Becton and Dickinson & Co. Many of these companies have turned toward build-to-suit construction to support further expansion.
The Need for Space
As we examine these evolving trends in the San Antonio office market, two questions come to mind for contemplation going into 2014: Has new construction supported expansion in the roster of companies doing business in San Antonio; and does this growing corporate presence impact our market’s industry composition? Understanding these trends should provide insight into the office market going forward.
The addition of newer buildings to the office inventory has provided more efficient layouts, higher parking ratios, proximity to desired amenities and new finishes for tenants in a market with limited Class A availability. These space characteristics also assist companies with talent recruitment and retention by providing a modern workplace environment.
The leading employment sectors for San Antonio have traditionally been military and tourism. The city is home to the largest military medical facility in the country and is the top tourist destination in Texas.
Media and technology is emerging, too, as San Antonio also has the largest co-working space for start-ups in the state (a 45,000-square-foot facility known as Geekdom) and the top open cloud computing company in the world (Rackspace).
New build-to-suits for corporate users have continued to broaden the industry base throughout the city, expanding employment in professional services, healthcare, energy and technology. NuStar, a growing energy company, built a 300,000-square-foot headquarters in the far Northwest submarket and now has 550 employees. KCI, a medical company with 2,000 employees throughout San Antonio, recently completed construction of its more than 98,000-square-foot headquarters. Nationwide completed construction of a regional 300,000-square-foot headquarters, which housed nearly 1,500 employees upon delivery with hiring underway to expand that total to 2,000 associates.
San Antonio has recently been described as an up-and-coming city and a place that is going somewhere. With these trends supporting office market expansion and broader industry composition, we agree that San Antonio is poised for growth and our office market will continue to evolve.
— Steve Thomas, first vice president; Lindsey Tucker, vice president; and Sara Rutledge, director of research and analysis, CBRE