The downtown San Antonio office sector is shining brightest when compared to the second quarter. Vacancy has declined from 29 percent to 24 percent and absorption is in the black.
“The downtown San Antonio office market experienced a big win in the third quarter,” says Kim Gatley, senior VP and director of research for NAI REOC San Antonio.
Some of the major transactions for the CBD include HVHC Inc. leasing 112,652 square feet and Argo Group US Inc. leasing 77,000 square feet at the IBC Centre I & II complex. Transactions like these have lead to 265,034 square feet of positive absorption this quarter.
But it's at the expense of the suburban market, which is struggling with 99,504 square feet of negative absorption this quarter. Year-to-date, San Antonio's non-CBD properties have posted 62,580 square feet of negative absorption.
Citywide, there is 165,530 square feet of positive absorption in the third quarter, but the year-to-date total sits at 129,871 square feet of negative net absorption. Vacancy, however, remained relatively stable at 19.9 percent.
Rental rates citywide have risen 2.1 percent from last quarter to sit at $21.11 per square foot.
Bright areas for San Antonio:
• Domicilio Conocido purchased Pacific Plaza (101,455 square feet) from MSB Pacific Plaza LP
• Northside ISD purchased 38,833-square-foot facility from Clarke Farinon
• A 42,377-square-foot office building at 17115 San Pedro Ave. has been delivered and Killam Development is occupying 6,864 square feet.
• Bakery on Broadway redevelopment will deliver 107,644 square feet.
The biggest obstacle lying ahead for San Antonio is office vacancies that are scheduled to happen in the first quarter of 2012.
“Although there is movement in the market and San Antonio remains poised for recovery, improvement will be challenged in 2012 by the upcoming return of vacant space,” says Gatley.
AT&T is vacating approximately 433,000 square feet of space at 530 McCullough Ave. in the first quarter of 2012 to move its operations to Dallas. Also, NuStar Energy, Kinetic Concepts, Inc. (KCI) and Nationwide Insurance are vacating approximately 350,000 square feet of office space in 2012.
“Even as we celebrate the sizeable leases signed at the IBC Centre complex this quarter, the downtown market continues to face the challenge of additional vacancy,” says Gatley. “The return of these large blocks of space will keep downward pressure on rental rates and deter developers from starting any new large-scale speculative projects over the next year or better.”
— John Nelson