Higher-tier properties have continued to drive San Antonio's office sector’s recovery. Still, their strong performance wasn’t enough to prevent the city from experiencing negative overall demand in the first quarter.
The market recorded a total negative absorption of 102,296 square feet. While Class A properties absorbed a positive 119,690 square feet, Class B and C assets together saw a combined loss of 221,986 square feet.
"Q1 absorption figures reflect a continuing flight-to-quality and flight-to-new among occupier tenants: positive absorption was concentrated in Class A space, and occurred mostly in the Far North Central, Midtown and CBD submarkets, where new construction has been concentrated in recent years," said CBRE.
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"Class B and C space saw negative total net absorption, as did inner Northern submarkets along 410, which are characterized by older building product."
Vacancy has continued to increase for the most part since 2022 in San Antonio's office sector. As of the first quarter, the overall rate was 19.9 percent. However, as with absorption, the results differ by property type. Class B vacancy spiked by 110 basis points to 20.1 percent, while Class A's went down by 50 basis points to 21.3 percent.
Leasing activity was also down in the market, falling to just over 200,000 square feet compared with more than 300,000 square feet in the fourth quarter. This was among deals that were at least 10,000 square feet.
On a positive note, no new office construction has occurred in the market for the past four quarters. However, some developments are looming. This includes Walker Ranch Business Park, which is set to start construction for 81,000 square feet of Class A space in the second quarter. Innovation Tower approved $7.5 million in funding to transition its project to the design phase; a ground-breaking date has not been revealed. Walker Ranch is already roughly 33 percent pre-leased to Zachry Construction, according to CBRE.
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