Downturn Catches Up to San Antonio

SAN ANTONIO-The San Antonio office market, feeling the reverberations of the ailing economy, saw its overall vacancy rate-for direct and sublease space-rise to nearly 18% in the third quarter. The direct-lease vacancy rate was 14.1%, up from 12.4% at the end of the second quarter and from 11.8% in the 2000 third quarter.

The numbers come from a survey conducted by Koontz McCombs Realty Services Inc., development, construction and brokerage company, based in San Antonio. Although the national and San Antonio economies has slowed all year, the third quarter treated the city roughly. Tenants gave up about 180,000 sf in the quarter, raising the year-to-date negative absorption to 255,000 sf. Much of that give back came from AT&T, which didn’t renew 50,000 sf at the CityView Office Building, and SBC Communications Inc., which didn’t renew 80,000 sf at Corporate Square Tower.

The aftermath of the Sept. 11 attacks exacerbated the market declines, low corporate earnings and layoffs. “The impact of these factors has been rippling through our market all year, giving businesses reason to pause and take a very conservative approach to their leasing or expansion plans,” Todd McClain, senior vice president of Koontz McCombs, says in the report. “The result has been a stalled and slightly declining office market. Unfortunately, the tragic events of last month will only serve to deepen the market decline.”

Rents still posted a small gain in the quarter, going to $17.75 per sf from $17.67 per sf at the end of the second quarter. In comparison, the close of the Q3 2000 was $17.41 per sf. The Koontz McCombs report says rental concessions are beginning to pop up as small amounts of free rent.

The survey found 894,000 sf in new leases and expansions during the third quarter, but cautioned that most of them were companies moving from one building to another. “This clearly demonstrates that landlords are aggressively working to renew tenants,” according to the Koontz McCombs report.

Several new projects hit the market in the third quarter with just one, the 73,000-sf Cinema Plaza Renovation, pre-leasing significant amounts of space. The other projects were North Park Corporate Center, 48,600 sf; Pantheon Garden Offices, 27,868 sf; and 145 Duncan, 77,242, at KellyUSA. Two north-central submarket projects also got started: the fifth building at the Parkway Plaza in Arion Park and Fairway Oaks Garden Offices, 26,000 sf.

And what does the fourth quarter hold? Openings for McCombs Plaza, 117,622 sf, and The Commons at Concord Park, 64,200 sf.