While 80,000 sf of positive absorption in the fourth quarter closed 2002 on a positive note, more than 460,000 sf of office space returned to the market during the year. This year, the possibility that SBC Inc. might leave 90,000 sf at the Bank of America building in the CBD looms over the market.
The strongest part of the San Antonio market was the CBD's class A space. The 7.4% vacancy rate was the lowest in the city; last year, it was 2.3%. The vacancy rate could rise to 12% when SBC vacates the Bank of America building, says Kim Gatley, REOC's director of research. "It's prime space," she says. "And likely to fill quickly." Vacancy rates in the city's submarkets were: northwest, 19%; north central, 15%; northeast, 14%; and south, 16%.
Class A rents in the CBD, the highest in the city, rose to an average of $21.53 per sf in the CBD from $21.16 per sf in 2001. Rents for class A space outside the CBD, however, fell to $20.60 per sf from $21.08 per sf.
Gatley said rents are declining mainly through the use of free rent rather than the lowering of quoted rates. Aggressive building owners in high-vacancy buildings are offering concessions that can lower costs 10% to 15%, she said.
That developers restrained building in 2002 offers the possibility of a quick office turnaround when the economy improves, Gatley says. Just three speculative projects were completed last year, adding 122,798 sf. By the time they were finished, they had been substantially leased.
Gatley warns, however, that new construction isn't the only space-adding factor. "The addition of space through the conversion of military and private facilities, such as Valero and WorldCom, will impact our market if and when they become viable and competitive office properties," she says.
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