The office market ended 2001 with a 15.3% citywide vacancy rate and a negative absorption of 483,000 sf, all in suburban submarkets. Much of the space came to the market after layoffs by companies responding to economic conditions. The biggest, Grubb & Ellis says, was SBC Communications' cut of several thousand employees and putting 193,000 sf up for sublease.
The forecast said employment should rebound by mid-2002 and bring office occupancy with it. Rents will continue to drop throughout the year, abetted by aggressive concessions. With a national economic recovery, the San Antonio office market will show positive gains in 2003, according to the forecast.
San Antonio's industrial grew by almost 4.3 million sf as Kelly Air Force Based joined the private sector as KellyUSA, a mix of industrial space aimed air, rail and truck traffic for international trade. Prospective tenants, however, shied away from making deals because of the economy. Rents dropped $1.47 per sf per year.
Grubb & Ellis forecasts higher vacancy rates for standard industrial facilities. Research and development-flex space, however, should gain as tenants seek technical office space with lower rents. Overall, the market is expected to post losses in 2002 beyond the 19.2% vacancy rate at the end of 2001 before growing again in early 2003.
The retail market is in for "a bumpy ride," researchers conclude. "With the implosion of consumer confidence during the final months of 2001 and the disappointing holiday sales figures, many local retail stores are expected to shutter operations," the forecast says. As a result, negative absorption is expected as early as the first quarter as new retail product opens. Other complications could follow a tourism drop-off resulting from the Sept. 11 attacks. Rents should favor tenants throughout 2002. The forecast adds there are "investment opportunities for those willing to assume a short-term risk. Sales prices will soften as new retail leases become cheaper."
In San Antonio, the investment and multifamily housing markets go hand-in-hand. Multifamily transactions accounted for 84% of the transaction volume in 2001. Grubb & Ellis expects that pace to continue in 2002. "Multi-housing investors continue to benefit from the high ratio of blue-collar to white-collar workers," the forecast said. "The demand for rental property is consistent allowing for owners to slowly, but steadily increase rents."
A pullback from San Antonio by institutional investors opens opportunities for entrepreneurial investors in the multifamily market, according to Grubb & Ellis. The best opportunities are class B and C properties. Class A properties have slowed because of high construction costs and sluggish leasing velocity.
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