Net absorption closes 2014 at highest levels since 2007

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1 MARKETVIEW San Antonio Office, Q4 14 Net absorption closes 14 at highest levels since 7 Avg. Asking Rates 15.9% Net Absorption.34 $/SF 1,343 SF 96,8 SF *Arrows indicate change from previous quarter. Figure 1: Asking Rate, Gross Avg. Annual and (%) $/SF Gross Annual Average Asking Rent Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 1 Q3 1 Q2 1 Q1 1 Q4 9 Q3 9 Q2 9 Q1 9 Q4 8 Q3 8 Q2 8 Q1 8 Q4 7 Q3 7 Q2 7 1 Q1 7 Source: CBRE Research, Q4 14. The office market finished the year with over 8, sq. ft. of positive net absorption, the highest level seen since 7, after posting 1,343 sq. ft. of net absorption in Q4 14. This brought total vacancy down to 15.9%. After delivering two buildings for a total of over, sq. ft. to the market, construction levels remained just under 1 million sq. ft. with two more projects breaking ground. The Alamo city has over 9, sq. ft. of new office product under construction, an amount San Antonio has not experienced since 9. San Antonio was named the top city for military retirees by a new study commissioned by USAA And the U.S. Chamber of Commerce. Q4 14 CBRE Research Following a quarter of modest positive net absorption, 14 ended with a much stronger one. Q4 14 saw positive net absorption of 1,343 sq. ft., making this the second straight year of every quarter seeing positive net absorption. This also marks the fourth straight quarter where the market's vacancy rate declined, falling 7 basis points (bps) quarter over quarter, finishing the year at 15.9%. This caused total space occupied in the market to increase, up to over 22.7 million sq. ft. 14 CBRE, Inc. 1

2 In a year that has seen preleasing in product under construction reach 55%, preleased space fell by the end of the year, mainly due to product being delivered to the market and other projects breaking ground with no preleasing. The quarter finished rates increase $.24 per sq. ft. quarteroverquarter, up to $.34 per sq. ft. on a fullservice gross (FSG) basis. This is more than double the rise experienced in Q3 14. The only submarkets to see average asking rates fall were both the CBD and with 315,27 sq. ft. preleased, which accounts for almost 33% of product currently under construction. the South submarkets, which ended the quarter at $.67 per sq. ft. and $15.5 per sq. ft., respectively. The market was led by the Northwest submarket closing the quarter with 15,52 sq. ft. of positive net absorption. Large contributions to this total included the absorption experienced when Harland Clarke leased the entire Westridge One building, occupying 129,15 sq. ft. in Q4 14. This was followed by 72,11 sq. ft. of positive net absorption in North Central. Negative net absorption across submarkets in the quarter was very modest, as only two submarkets finished the year by giving back space to the market. The Northeast and Far North Central submarkets, posted 4,886 sq. ft. and 1,768 sq. ft. of negative net absorption, respectively. While not yet reaching their record levels set back in 12, citywide average asking rates in the market rose for the third consecutive quarter. Q4 14 saw The market saw activity for product under construction, as two more projects were completed for the year. The North Central also saw its second building delivered this year with the completion of 25 W Nottingham. The 68, sq. ft. building delivered 1% preleased to multiple tenants. Also, Westridge One at La Cantera delivered in the Northwest and, as with 25 W Nottingham, was 1% preleased to Harland Clarke. With the completion of Westridge One, Westridge Two began construction, which will add another 128,7 sq. ft. to the Northwest. One51 Office Centre broke ground in the Far West and will add 1, sq. ft. to the market upon its completion, which is expected next year. The market is expected to see three more projects deliver within the first half of 15, combining for over 3, sq. ft. added to the market. Figure 2: Net Absorption by Class Net Absorption ( s SF) (1) () (3) Class A Class B Q4 14 Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 Q4 1 Q3 1 Q2 1 Q4 9 Q1 1 Q3 9 Q2 9 Q1 9 Q4 8 Q3 8 Q2 8 Q1 8 Q4 7 Q3 7 Q2 7 (4) Total Net Absorption Source: CBRE Research, Q4 14. Q4 14 CBRE Research 14 CBRE, Inc. 2

3 Figure 3: Market Statistics Rentable Area Market Total Vacant Total (%) Net Absorption Delivered Under Asking Rate Gross Avg. ($/SF/ Yr) CBD 5,1,35 1,4, , North Central 8,86,835 1,9, ,11 68, Far North Central 2,458,355 2, (1,768) 364, Northeast 1,924, , (4,886).88 Northwest 8,581,667 1,525, ,52 129,15 335,58.61 Far West 384,11 31, ,5 South 473,871 67, , Totals 27,9,525 4,299, ,343 7,15 96,8.34 Source: CBRE Research, Q4 14. Figure 4: Net Absorption and Net Absorption ( s SF) (%) 1, (1) 13 (3) 12 (5) Q1 9 Q2 1 Q3 11 Q Total Annual Absorption Source: CBRE Research, Q4 14. ABSORPTION AND VACANCY While still not as strong as the first two quarters of the year, Q4 14 saw an improvement in net absorption quarteroverquarter by finishing at 1,343 sq. ft. This brought the annual total up to 864,215 sq. ft., marking the highest level since 7. This also closed out the second straight year of every quarter seeing positive net absorption. The Northwest accounted for the highest level of positive net absorption, posting 15,52 sq. ft. Negative net absorption was very modest, with only two submarkets returning just over 6, sq. ft. combined. This was led by the Northeast with Q4 14 CBRE Research 4,886 sq. ft. of negative net absorption, followed by the Far North Central submarkets returning 1,768 sq. ft. to the market. Notable deals from Q4 14 include: IBEX leased 42,262 sq. ft. at University Park Business Ctr D. Harris Connect vacated 28,893 sq. ft. at the Chisholm Building. UTSA moved out of 11,8 sq. ft. at 435 Lockhill Selma. The UT Health Science Center vacated 45,324 sq. ft. of space at Med Centre Plaza. Generations FCU signed a lease for 6,688 sq. ft. at SWBC Tower. 14 CBRE, Inc. 3

4 U N E M P LOY M E N T After seeing unemployment remain stagnant in the previous quarter, rates saw a slight decrease of 1 bps in the month of October. The San AntonioNew Braunfels seasonally adjusted unemployment rate dipped slightly to 4.6%, matching its lowest levels since the end of 8. Unemployment also continued its downward trend at the national level, falling another 4 bps to 5.8%. State unemployment levels remained steady at 5.1%. Figure 5: Unemployment Rate % OFFICE RENTS Citywide asking rates inched closer to the 12 record high, as average rates rose another $.24 per sq. ft. up to $.34 per sq. ft. Since the beginning of 14, citywide rates have seen 3% growth. All classes across the market experienced an increase this quarter, with the largest coming from Class C product at $.34 per sq. ft. quarteroverquarter. This was followed by Class B rates, which matched the growth seen by the overall market at $.24 per sq. ft., and finally Class A product with a $.9 per sq. ft. increase. 9 US 1 11 Texas Q4 14 San Antonio Source: CBRE, Q4 14. Figure 6: Asking Rates, Gross Avg. Annual $/SF OFFICE PRODUCT The San Antonio office market saw the delivery of two more projects, with both totalling over, sq. ft. and brought the total for delivered product in 14 to over, sq. ft. The North Central saw the completion of 25 W Nottingham Pl (68, sq. ft.) and the Northwest with Westridge One (129,15 sq. ft.), the first building of the new Westridge at La Cantera Office Park across from the Shops at La Cantera. Both buildings were fully leased upon completion. Coinciding with the deliveries were two more projects breaking ground, causing total office space under construction to finish the year at 96,8 sq. ft. Westridge Two is set to add another 128,7 sq. ft., while One51 Office Centre will add 1, sq. ft. in the Far West. The market is expected to see three more projects deliver within the first half of 15, for over 3, sq. ft Class A 9 1 Class B Q4 14 Avg. Overall Asking Rates Source: CBRE, Q4 14. Figure 7: s SF 1,6 1,4 1, 1, Under Q4 14 Preleased Delivered Source: CBRE, Q4 14. Q4 14 CBRE Research 14 CBRE, Inc. 4

5 CONTACTS CBRE OFFICE Lynn Cirillo Research Operations Manager CBRE San Antonio Concord Plaza, Ste. 8 San Antonio, TX 782 Nicholas Ianetta Research Coordinator nick.ianetta@cbre.com To learn more about CBRE research, Or to access additional research reports, Please visit the global research gateway at Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.