San Antonio office: New product pushing rents to all-time high

​​SAN ANTONIO – Despite the perception that the overall economy may be cooling, the local office market had a strong start to 2016, according to the survey of more than 30 million sf of office lease space conducted by REOC San Antonio.

Demand for office space generated healthy positive net absorption with tenants taking down a net of 234,545 sf in the first quarter. Citywide occupancy improved compared with the previous quarter, and rents hit a record high. 

Three new multitenant buildings totaling 140,733 sf were delivered in the first quarter.

With demand outpacing new supply, the citywide vacancy rate improved to 18 percent compared with 18.5 percent the previous quarter. Still, vacancy is up from the 17.5 percent recorded a year ago. That increase is primarily due to the more than 900,000 sf of new space delivered in 2015 which, as a group, came online at below-market occupancy and continues to move through the lease-up process.

“New projects delivered in 2015 ended the year with a combined occupancy rate of 38 percent, but by the close of the first quarter that occupancy rate had improved to 45 percent,” said REOC San Antonio Senior Vice President and Director of Research Kimberly Gatley.

Citywide vacancy within Class A buildings remained stable over the quarter at 13.8 percent, substantially below Class B and C markets at 19.6 percent and 24.2 percent, respectively. Still, vacancy within the Class A market is high compared with the 9.5 percent recorded last year at this time.

Office properties closed the quarter with a combined citywide average quoted rental rate of $22.08/sf on an annual, full-service basis—a record high according to REOC’s data dating back to 1990.

The citywide average rent is up roughly $2 per sf compared with a year ago, reflecting the higher rental rates quoted for newly constructed office buildings. On average, the cost for renting Class A office space increased $0.87/sf over the year to reach $26.80, while the average rent for Class B space rose only $0.03 to $20.19.​