San Antonio Office Market Maintains Steady Pace with Job Growth

While office markets around the country spiral downward, the San Antonio market suffered less than its counterparts nationwide. The leasing market wrapped up the year with significantly lower absorption growth in comparison to 2007, but those were some hard numbers to follow, according to Grubb & Ellis Co.’s 2009 forecast for San Antonio’s office and investment markets. The large amount of space absorbed in 2006 and 2007 sparked a frenzy of new construction activity in the market of which 1.2 million square feet was added in 2008. Sensitive to the economic conditions, speculative development will taper off significantly to approximately 417,000 square feet in 2009, the report stated. “Clearly we have more construction going on than we would like with more than 1 million feet built,” Ernest Brown, executive vice president & managing director with Grubb & Ellis, told CPN. “But, surprisingly, there are some positive things that are happening, too.” “We think we’re going to have positive absorption this year,” Brown said. “Tenants are cautious, but people are still expanding. We’ll experience positive job growth with another 15,000 jobs added this year.” Regional fast food chain Whataburger plans to move its corporate headquarters from Corpus Christi to San Antonio, Brown said. That means the relocation of 250 people alone. Additionally, Caterpillar–the world’s largest maker of construction and mining equipment, diesel and natural gas engines and industrial gas turbines–began building a new factory in Seguin, which is just 30 minutes from San Antonio. The relocations come as welcome news to San Antonio, which experienced some big losses with the move of AT&T’s corporate headquarters to Dallas and the closure and downsizing of banking and mortgage related institutions. In addition to AT&T vacating 175 E. Houston, several large blocks of space are anticipated to return to the market over the course of 2009. Tesoro will consolidate its existing offices across San Antonio into a 618,000-square-foot campus at Ridgeway Park. The move will leave more than 250,000 square feet vacant at 300 Concord, McAllister Plaza and several other small offices around the city. Additionally, Frost Bank will vacate its existing 61,000-square-foot space at 4715 Fredericksburg Road, according to the report. “Tesoro Petroleum will vacate 350,000 square feet, which is the equivalent of a building in North Central San Antonio. That will impact us and the north central market,” Brown said. “It will create more competition for deals, but landlords aren’t coming down on rates a whole lot. They’re spending more money on tenant improvements to keep rental rates closer or they’re doing free rent like four months free on a 60-month lease.” The medical sector is where San Antonio is experiencing the most growth. From the various hospitals across the area to the Base Realignment and Closure (BRAC) projects at Fort Sam Houston, Randolph Air Force Base, and Port San Antonio, formerly known as Kelly Air Force Base, they are all building new facilities or expanding, Brown said. “It is a tremendous benefit on the medical side. Everyone from south of here tends to come to San Antonio,” Brown said. “We have 3,500 new jobs every year just in the medical field itself and those are high paying jobs, which is great.” The BRAC will have an impact by bringing in 12,000 employees and their spouses and families, he said, and all the service providers for those families. “The big message is that San Antonio is a very resilient town. There are no big swings in cycles. We are more like the turtle in the tortoise and the hare story. We’re plodding along but we’re doing well. I like that,” Brown said.