San Antonio Office MarketView 4Q 2018 - Texas A&M University · Antonio office market going forward. CBD REIGNS SUBREME; SOUTH FOLLOWS SUIT Once again, San Antonio’s CBD submarket

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289,105 SF13.4%

Fourth quarter absorption closes

2018 on a high note

San Antonio Office, Q4 2018

Q4 2018 CBRE Research © 2018 CBRE, Inc. | 1

Figure 1: Net Absorption and Vacancy Rate

Source: CBRE Research, Q4 2018.

22,000 SF

TENANTS FLOCK NORTHWEST

VACANCY DROPS, LIMITING AVAILABILTY

*Arrows indicate trend from previous quarter.

1,362,513 SF

NEW SPACE DRIVES PRE-LEASING ACTIVITY

GROWING TALENT POOL

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$21.16 PSF

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Figure 2: San Antonio Market Statistics

*FSG rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties.

Figure 3: Significant Leases of Q4 2018

Source: CBRE Research, Real Capital Analytics, Q4 2018.

Figure 5: Active Users/Tenants in the Market


Figure 4: Significant Sales of Q4 2018

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Net Total Total Avg. FSG Under Q4 2018 Q4 2018 2018

Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net

Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption

CBD 4,954,532 8.8 9.6 21.02 602,654 - 12,769 94,852

Class A 1,955,175 5.5 7.5 24.15 602,654 - (231) (31,854)

Class B 2,187,675 11.0 11.0 20.12 - - 12,131 106,464

North Central 8,578,328 15.5 16.1 22.11 640,928 22,000 56,955 (190,006)

Class A 2,747,351 11.2 13.1 25.65 580,928 22,000 36,346 144,229

Class B 4,541,949 18.2 18.8 22.3 60,000 - 3,601 (336,569)

Far North Central 2,838,538 7.9 9.1 21.39 - - 22,778 66,829

Class A 1,841,349 7.5 9.1 21.33 - - 5,888 42,593

Class B 915,286 9.3 9.6 20.32 - - 16,777 8,837

Northeast 2,315,532 18.3 18.7 18.79 - - 16,650 18,460

Class A 743,777 6.0 7.7 21.04 - - 13,309 12,903

Class B 1,148,592 23.0 23.0 18.78 - - (422) (15,288)

Northwest 10,183,864 14.6 15.0 21.04 93,931 - 143,334 256,938

Class A 3,295,794 12.7 13.8 24.27 27,031 - 22,372 110,967

Class B 4,468,736 17.1 16.5 20.57 66,900 - 48,744 90,462

Far West 895,275 13.4 13.4 20.65 25,000 - 33,195 47,562

Class A 614,434 13.5 13.5 19.84 - - 33,195 47,562

Class B 280,841 13.0 13.0 22.5 25,000 - - -

South 468,838 7.3 7.8 14.01 - - 3,424 28,135

Class A - N/A N/A - - - - -

Class B 320,184 5.3 5.9 11.65 - - 3,424 20,835

San Antonio Total 30,234,907 13.4 14.0 21.16 1,362,513 22,000 289,105 322,500

Class A 11,197,880 9.8 11.3 23.84 1,210,613 22,000 110,879 326,400

Class B 13,863,263 16.1 16.2 21.03 151,900 - 84,255 (125,199)

Lease (Tenant) Property Total SF

Financial Institution Pearl Office Tower 66,000

Linebarger Heritage Oaks 30,000

Meritage Homes Inwood Village 16,000

Sale (Building) Address Total SF

The Spectrum Building 613 NW Loop 410 175,514

Lockhill Crossing 4630 N Loop 1604 W 126,626

Heritage Oaks I 2330 N 1604 W 84,000



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Figure 6: Asking Rates, Avg. Annual – Full Service Gross (FSG)

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Figure 7: Development Pipeline and Availability


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Average - FSG Class A Class B

*FSG rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Source: CBRE Research, Q4 2018.

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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.

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NOTES:

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14.3%

Third quarter movement pushes

healthy absorption activity





102,669 SF

SAN ANTONIO’S EMERGING TECH MARKET

CLASS A SPACE IN DEMAND


1,047,280 SF92,749 SF

LEASING ACTIVITY RAISING THE BAR

NEW DEVELOPMENTS UNDERWAY

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$21.57 PSF

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*FSG rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties.


Source: CBRE Research, Real Capital Analytics, Q3 2018.




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Net Total Total Avg. FSG Under Q3 2018 Q3 2018 2018 YTD

Submarket Rentable Vacancy Availability Asking Construction Deliveries Net Net

Area (%) (%) Rate ($) (SF) (SF) Absorption Absorption

CBD 4,978,316 10.6 11.3 23.94 602,654 - 79,202 82,083

Class A 2,295,150 7.1 8.7 30.80 602,654 - 43,308 (31,623)

Class B 1,724,799 13.2 13.2 20.42 - - 50,424 94,333

North Central 8,607,768 15.5 16.4 22.62 250,038 - (29,444) (246,961)

Class A 2,733,049 11.2 12.7 25.71 174,038 - 102,878 107,883

Class B 4,537,261 18.4 19.1 22.50 76,000 - (94,778) (340,170)


Class A 1,887,470 8.1 9.7 21.21 - - 11,766 36,705

Class B 892,947 11.9 13.0 19.60 - - (7,041) (7,940)

Northeast 2,314,564 20.0 20.5 18.81 59,750 - (46,419) 1,810

Class A 587,305 12.4 14.2 21.67 59,750 - (9,643) (406)

Class B 1,298,332 20.4 20.4 18.78 - - (28,590) (14,866)

Northwest 10,032,822 15.4 16.3 20.83 118,776 102,699 83,182 113,604

Class A 3,355,709 14.0 15.6 24.73 - - 73,688 88,595

Class B 4,298,197 17.0 17.3 20.27 118,776 102,669 39,063 41,718

Far West 895,275 17.1 17.1 20.65 - - (983) 14,367

Class A 614,434 18.9 18.9 19.84 - - (983) 14,367

Class B 280,841 13.1 13.1 22.50 - - - -

South 468,392 8.1 8.5 14.09 16,062 - 2,486 24,711

Class A - N/A N/A - - - - -

Class B 356,235 9.7 10.3 13.80 16,062 - 2,486 17,411

San Antonio Total 30,159,457 14.3 15.2 21.57 1,047,280 102,669 92,749 33,395

Class A 11,473,117 11.2 12.7 25.05 836,442 - 221,014 215,521

Class B 13,388,612 16.7 17.1 21.01 210,838 102,669 (38,436) (209,454)


Spectrum 12238 Silicon Dr. Bldg. 1 75,672

WeWork The Kress Building 64,531

Allcat Claims Parkway Plaza 3 45,763


One Alamo Center 106 S Saint Marys St. 165,500

UnitedHealth Group 6200 Northwest Pkwy 142,500

The Atrium 502 Madison Oak Dr. 134,200



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NOTES:

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Vacancy

15.8%

Market fundamentals level-out as

leasing cools





Completions

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A NEW SOURCE OF DATA

Over the course of 2018, CBRE Research has engaged in the process of transferring the tracked dataset for the San Antonio office market from Xceligent over to CoStar. Utilizing CoStar as the primary source of 3rd party information for the tracked dataset will allow CBRE Research to better understand the San Antonio office market going forward.

CBD REIGNS SUBREME; SOUTH FOLLOWS SUIT

Once again, San Antonio’s CBD submarket reported the largest net absorption in Q1 2018, registering more than 100,000 sq. ft. Most of this activity occurred in the Class B market, while Class A buildings saw a negative absorption level of (22,930) sq. ft. Following the CBD, the South submarket registered the next highest level of absorption activity in the market, registering 22,317 sq. ft., predominately in Class B product as well.

NEGATIVE ABSORPTION MARKS THE QUARTER

Despite the positive absorption observed in the CBD and South submarkets, the overall market registered negative market movement, with negative absorption, decreasing average asking rates, and an uptick in citywide vacancy. The North Central submarket was the most impacted submarket, registering negative net absorption of (256,230) sq. ft., down from (13,590) sq. ft. registered in Q4 2017.


Under Construction998,131 SF

Net Absorption(152,788) SF

Following the North Central submarket, the Northwest area registered (40,703) sq. ft. of negative net absorption. Citywide vacancy rates increased 140 basis points (bps) from Q4 2017, climbing to 15.8%. To complement the increase in vacancy, citywide average asking rates decreasing $1.32 per sq. ft. from Q4 2017 to $21.04 per sq. ft. in 2018.

CONSTRUCTION DELIVERING IN COMING MONTHS

Once again, the office market saw no new deliveries come online during the first 90 days of 2018. CBRE Research is currently tracking 10 office projects currently under construction, totaling approximately 1 million sq. ft. The largest project under construction in the metropolitan area is the Frost Tower in the CBD, totaling 462,000 sq. ft. There are four projects under construction in the Northwest, accounting for 207,000 sq. ft.; the rest of the projects underway are scattered throughout the city. CBRE Research anticipates more projects to break ground in 2018.

EMPLOYMENT TAKES A HIT AT START OF 2018

Unemployment in San Antonio ticked upwards during the first quarter of 2018, rising from 3.0% in Dec 2017 to 3.4% in February 2018. Total non-farm jobs fell from 1.056 million in December 2017 to 1.041 million in January 2018, with a slight rebound in February 2018 to 1.051 million.

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Avg. Asking Rate$21.04 PSF FSG

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*FSG rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties. Source: CBRE Research, Q1 2018.


Source: CBRE Research, Real Capital Analytics Q1 2018.




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Net Total Total Avg. FSG Under Q1 2018 Q1 2018 2018

Submarket Rentable Vacancy Availability Asking Construction Deliveries Net NetArea (%) (%) Rate ($) (SF) (SF) Absorption Absorption

CBD 5,264,361 12.0 12.3 21.90 462,000 - 104,738 104,738Class A 2,295,150 8.9 9.6 29.30 462,000 - (22,930) (22,930)Class B 1,724,799 15.9 15.9 18.92 - - 119,518 119,518

North Central 8,515,507 17.6 18.1 22.04 100,000 - (256,230) (256,230)

Class A 2,733,049 16.1 16.5 25.69 100,000 - (13,895) (13,895)Class B 4,489,984 19.7 20.3 21.12 - - (260,661) (260,661)


Class A 1,965,701 11.5 14.8 20.38 - - (12,785) (12,785)Class B 801,267 11.3 12.1 21.06 - - 4,069 4,069

Northeast 2,242,821 19.2 19.4 18.81 120,000 - (3,111) (3,111)Class A 587,305 12.2 13.1 20.21 120,000 - 6,257 6,257Class B 1,238,200 15.1 15.1 19.31 - - 10,808 10,808

Northwest 9,974,181 17.3 17.5 20.52 226,131 - (40,703) (40,703)Class A 3,349,885 16.8 16.8 24.81 226,131 - (50,180) (50,180)Class B 4,151,312 17.9 18.1 19.42 - - (4,331) (4,331)

Far West 902,066 17.0 17.0 20.73 - - 15,174 15,174Class A 621,225 18.7 18.7 20.18 - - 15,174 15,174Class B 280,841 13.1 13.1 22.50 - - - -

South 468,392 4.9 5.3 13.53 90,000 - 22,317 22,317Class A - N/A N/A - 90,000 - - -Class B 356,235 5.5 6.1 13.31 - - 15,017 15,017

San Antonio Total 30,216,199 15.8 16.3 21.04 998,131 - (152,788) (152,788)Class A 11,552,315 14.0 14.9 24.62 998,131 - (78,359) (78,359)Class B 13,042,638 17.2 17.5 20.04 - - (115,580) (115,580)


Baptist Health Systems 286 W Bitters Rd 30,725

Payment Data Systems John Yantis Center 10,535

Conceptual MindWorks Acropolis Building 10,014


151 Technology Center (A & B) 1560 Cable Ranch Rd 122,975

335 E Sonterra Blvd. 335 E Sonterra Blvd. 31,640

Interpark Office Bldg. 131 Interpark Blvd. 29,923


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CONTACTS

Robert C. KrampDirector, Research & [email protected]

E. Michelle MillerResearch Operations [email protected]

Luke GoebelResearch [email protected]

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San Antonio Office200 Concord Plaza, Suite 800San Antonio, TX 78216

To learn more about CBRE Research,or to access additional research reports,please visit the Global Research Gateway at www.cbre.com/researchgateway.

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NOTES:Statistics in this report include only properties larger than 20,000 sq. ft. and exclude owner-occupied, medical, and government properties. FSG and NNN rent averages are weighted and include only properties with corresponding quoted rents.

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14.4%

Steady leasing activity pushes

down vacancy to annual low





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NORTHWEST AND CBD SHARE BULK OF LEASING

CLASS A VACANCY TIGHTENED THIS YEAR

RENTS SEE STRONG PUSH

*See Figure 2 for NNN rents. All statistics exclude owner-occupied properties. Arrows indicate trend from previous quarter.

894,981 SF$22.36 PSF (FSG)*81,911 SF

CONSTRUCTION DELIVERING IN COMING MONTHS

2017 HAD ROBUST EMPLOYMENT GROWTH

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SubmarketNet Rentable

Area (SF)Total Vacancy

(%)

Total Availability

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Avg. Asking Lease Rates ($/SF/YR)

Under Construction

(SF)

Deliveries (SF)

Q4 2017 Net Absorption

(SF)FSG* NNN*

CBD 5,142,686 14.6 18.0 22.62 18.81 462,000 - 55,283

Class A 2,108,307 8.6 11.3 27.08 NA 462,000 - 51,207

Class B 1,717,274 21.3 27.2 21.88 NA - - 0

North Central 8,716,901 13.8 17.2 23.27 20.52 100,000 - -13,590

Class A 2,771,887 12.4 18.0 27.01 21.46 100,000 - 35,656

Class B 4,491,410 15.0 17.7 22.11 18.88 - - -42,518

Far North Central 2,977,663 10.5 12.6 24.32 21.18 - - -7,575

Class A 2,054,314 9.4 10.8 25.00 21.49 - - -7,847

Class B 858,992 12.1 16.0 25.66 20.49 - - 272

Northeast 2,389,060 14.8 16.7 19.52 16.95 59,750 - 5,550

Class A 476,289 13.7 14.1 24.50 17.50 59,750 - 0

Class B 1,483,384 14.6 17.5 19.64 14.50 - - 5,550

Northwest 10,293,508 16.3 19.2 21.89 20.70 183,231 - 42,243

Class A 3,319,843 15.1 20.3 28.84 23.80 183,231 - 38,203

Class B 4,365,593 17.3 19.5 22.06 16.19 - - 29,908

Far West 949,477 8.4 8.4 NA 20.14 - - 0

Class A 613,290 7.0 7.0 NA 18.98 - - 0

Class B 336,187 10.9 10.9 NA 21.50 - - 0

South 496,664 15.5 31.1 15.50 16.50 90,000 - 0

Class A NA NA NA NA NA 90,000 - 0

Class B 384,507 17.3 17.3 15.50 NA - - 0

San Antonio Total 30,965,959 14.4 17.5 22.36 20.43 894,981 0 81,911

Class A 11,343,930 11.7 15.4 27.47 22.09 894,981 0 117,219

Class B 13,637,347 16.3 19.1 21.80 18.01 0 0 -6,788


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*FSG/NNN rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties. Source: CBRE Research, Q4 2017.

Figure 3: Largest Absorptions of Q4 2017




Figure 4: Largest Vacancies of Q4 2017

Total SF Submarket BuildingBuilding Class

Tenant/Industry

-20,917 Northwest Corporate Square B Multiple Tenants

-14,488 North Central Centre Plaza B Multiple Tenants

-10,915 North Central North Chase C U.S. Customs


Tenant/Industry

52,529 CBD One Riverwalk Place A USAA

26,408 Northwest 4500 Lockhill Selma A Insurance

25,371 Northwest Callaghan Tower B Law

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Figure 6: Asking Rates, Avg. Annual – Full Service Gross (FSG) Figure 7: Asking Rates, Avg. Annual – Triple Net (NNN)

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Figure 8: Development


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*FSG/NNN rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. NNN rent averages before 2014 are not available. Source: CBRE Research, Q4 2017.

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NOTES:

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Vacancy

14.7%

Leasing and vacancy both steady with no deliveries





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SAN ANTONIO’S NORTHWEST STILL ANCHORS OFFICE LEASING

The Northwest submarket alone contributed almost 85,000 sq. ft. of the 106,224 sq. ft. of net absorption in Q3 2017. Far West, CBD and Class B assets saw greater moveouts this quarter after reporting small, but negative net absorptions. In terms of future demand, users seeking space remained healthy with requirements totaling 1.2 million sq. ft.

OVERALL VACANCY COMPRESSING

Positive movements, with the absence of new deliveries, compressed the market’s vacancy rate to 14.7%. Class A vacancy fell 60 basis points (bps) as tenants leased some of the recently delivered office space. Despite a steady vacancy, the trailing 24 months have tightened as vacant space dropped significantly compared to 19.1% in 2015.

FSG AND NNN ASKING RENTS REACH A NEW HIGH

Weighted average asking rents (FSG) for office product grew 3% from last quarter. Growth was largely anchored by Class A product, which has grown 4% in the last 90 days. However, as more owners quote asking rents on a NNN basis (particularly for Class A and new construction), this segment is seeing the strongest rent growth. Separately, NNN asking rents for Class A spaces averaged $22.41 per sq. ft.—a staggering 11% year-to-date

*See Figure 2 for NNN rents. All statistics exclude owner-occupied properties. Arrows indicate trend from previous quarter.

Under Construction1,035,231 SF

Avg. Asking Rate$22.26 PSF (FSG)*

Net Absorption106,224 SF

growth rate, largely driven by new product deliveries. Adding market-typical Class A NNN expenses of $12.00 would yield a calculated average FSG rent north of $34.00 per sq. ft. for Class A product. It should be noted that these adjusted rents are also considerably above the CBRE reported average FSG rent.

DELIVERIES TIGHTEN, PIPELINE EXPANDS

The office market saw no new deliveries, however, construction continued on four projects totaling 735,000 sq. ft. A new two-building, 300,000-sq.-ft. project broke ground just north of CBD at the Pearl District. While some specifics are yet to be confirmed, as much as 200,000 sq. ft. could be delivered occupied by a local credit union. Total development surpassed 1.0 million sq. ft. with an expected occupancy of 50%. Additional projects, including new and redevelopments in the CBD, are expected to enter the pipeline later this year and into 2018.

EMPLOYMENT GROWTH ROBUST

San Antonio’s regional economy continued expanding and its employment growth accelerated with 16,100 seasonally adjusted net jobs year-to-date and 25,000 jobs added year-over-year in August 2017. The seasonally adjusted metropolitan unemployment rate continued to trend below the state average at 3.6% as of July 2017.

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(%)

Total Availability

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Under Construction

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Deliveries (SF)


(SF)FSG* NNN*CBD 5,142,686 16.1 19.4 22.25 18.81 462,000 - -17,116

Class A 2,108,307 12.0 14.5 26.11 NA 462,000 - -23,981

Class B 1,717,274 21.3 27.2 21.88 NA - - -160

North Central 8,716,901 13.5 17.5 23.36 18.02 300,000 - 32,291

Class A 2,771,887 13.6 19.8 27.39 21.44 300,000 - 40,680

Class B 4,491,410 13.9 17.4 22.08 15.42 - - -8,119

Far North Central 2,977,663 10.7 14.3 24.20 22.58 - - 7,247

Class A 2,054,314 9.7 13.3 25.00 23.29 - - 17,740

Class B 858,992 11.9 16.0 25.39 20.57 - - -17,870

Northeast 2,389,060 15.1 16.3 19.46 15.48 - - 23,345

Class A 476,289 13.7 14.1 24.50 17.50 - - 24,018

Class B 1,483,384 15.0 16.8 19.57 13.83 - - -673

Northwest 10,349,162 16.6 19.3 21.70 18.61 183,231 - 84,695

Class A 3,319,843 16.2 19.4 28.61 23.38 183,231 - 44,405

Class B 4,421,247 17.7 20.9 22.21 15.03 - - 3,590

Far West 949,477 8.4 8.4 NA 20.14 - - -24,238

Class A 613,290 7.0 7.0 NA 18.98 - - 0

Class B 336,187 10.9 10.9 NA 21.50 - - -24238

South 496,664 15.5 31.1 15.50 12.41 90,000 - 0

Class A NA NA NA NA NA 90,000 - 0

Class B 384,507 17.3 17.3 15.50 10.00 - - 0

San Antonio Total 31,021,613 14.7 18.0 22.26 19.01 1,035,231 0 106,224

Class A 11,343,930 13.0 16.6 27.20 22.41 1,035,231 0 102,862

Class B 13,693,001 16.1 19.4 21.83 15.85 0 0 -47,470


SAN ANTONIO OFFICE


*FSG/NNN rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties. Source: CBRE Research, Q3 2017.

Figure 3: Largest Leases of Q3 2017


Figure 5: Active Users in the Market




Tenant/Industry

-24,238 Far West Security Tower Office B Multiple Tenants

-18,603 Northwest Tower West B Multiple Tenants

-18,286 Far N. Central Yantis Center B Yantis Company


Tenant/Industry

30,511 Northwest Landmark One A Methodist/Healthcare

23,728 Northwest Callaghan Tower BSeno Medical Instruments/Healthcare

20,000 Northeast Heritage Plaza ABoon Chapman/Business Services

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CONTACTS



Pedro NiñoSr. Research [email protected]

CBRE OFFICES



SAN ANTONIO OFFICE


MARKETVIEW

Vacancy

14.8%

Leasing activity revs up, vacancy steady with deliveries





Completions

388,448 SF

MOST SUBMARKETS SAW POSITIVE NET ABSORPTION, NORTHWEST LED ACTIVITY IN Q2 2017

Office demand was reported most predominantly in the Northwest submarkets where net absorption totaled more than 126,000 sq. ft. Furthermore, most submarkets, with the exception of South, posted larger move-ins than move-outs. In terms of future demand, users seeking space remained firm and diverse with requirements totaling 1.2 million sq. ft.

VACANCY REMAINED 3.1% BELOW YEAR-OVER-YEAR, AT 14.8%

Despite recent speculative (spec) deliveries, the market vacancy rate sat 1.7% below the trailing 10-year-average, while Class A sat an additional 1.2% below that figure. Despite a steady Q1 2016, the trailing 12 months have continued to tighten as vacant space dropped significantly compared to Q2 2016.

FSG ASKING RENTS REMAIN NEAR HIGHS, GROWTH IN NNN QUOTES QUICKLY ACCELERATING

Weighted average asking rents for office product (FSG) grew 2.7% from the same time last year. Growth was largely anchored by Class A product. However, with the market seeing more owners quote asking rents on a NNN basis (particularly for Class A and new construction), this segment is seeing the strongest rent growth.

*See Figure 2 for NNN rents. All statistics exclude owner occupied properties. Arrows indicate trend from previous quarter.


Avg. Asking Rate$21.64 PSF (FSG)*


When considering only NNN asking rents, Class A spaces averaged $22.53 per sq. ft. This grew by a staggering 10.9% from last quarter, largely because of newly delivered product. Adding market-typical NNN expenses of $12.00 would yield an adjusted average FSG rent north of $34.00 per sq. ft. for Class A product. It should be noted that these adjusted rents are also considerably above the CBRE reported average FSG rent.

SPEC PRODUCT DELIVERED, MORE ON THE WAY

This quarter delivered nearly 390,000 sq. ft. of new product with an occupancy of 40%, as San Antonio registered new construction near a cycle-high last quarter. Work continued on the 24-story Frost Tower in the CBD that is expected to deliver 462,000 sq. ft. by early 2019. Other projects totaling 318,107 sq. ft. and all speculative, were also under construction at the end of Q2 2017. Additional projects, both new and redevelopments, are expected to enter the pipeline later this year.

ROBUST EMPLOYMENT GROWTH

San Antonio’s regional economy and employment market continued to expand as industries added a net 5,100 jobs year-to-date and 24,900 year-over-year in May 2017. The metropolitan unemployment rate persisted below the state average at 4.1% as of April 2017.

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MARKETVIEW

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SAN ANTONIO OFFICE


*FSG/NNN rent averages include only properties with corresponding quoted rents. Although Class C is not listed, totals are inclusive of all classes of data. Statistics exclude owner occupied properties.Source: CBRE Research, Q2 2017.

Figure 3: Largest Leases of Q2 2017


Figure 5: YTD 2017 Total Leasing Activity by Industry

Source: CBRE Research, Q2 2017. Figures exclude unknown.



Tenant/Industry

-58,876 CBDFountainhead Business Park I

A AIU/Education

-25,713 CBD Grayson Office B Multiple Tenants

-22,536 Northwest Colonnade I A Multiple Tenants


Tenant/Industry

58,876 NorthwestFountainhead Business Park I

A Hulu/Tech

28,080 CBD Finesilver Building CTaskUs/Business Services

21,737 Northwest Tech Ridge II BBecton Dickinson/Medical



(%)

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(%)


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(SF)

Deliveries (SF)


(SF)FSG* NNN*CBD 5,124,226 15.4 17.6 20.43 18.81 462,000 - 31,424

Class A 2,108,307 10.9 12.9 25.95 NA 462,000 - 7,989Class B 1,698,814 21.6 22.2 18.60 NA - - -4,577

North Central 8,711,851 13.9 17.6 23.23 18.29 - - 13,205Class A 2,771,887 15.1 20.4 27.26 21.53 - - -26,679Class B 4,486,360 13.7 17.1 21.97 15.42 - - 37,973

Far North Central 2,975,539 9.7 14.7 23.49 21.68 - - 7,554Class A 2,054,314 8.8 14.4 24.89 22.29 - - -7,799Class B 856,868 9.9 13.8 25.46 19.58 - - 26,880

Northeast 2,389,060 16.0 17.0 19.87 15.91 - - 33,083Class A 476,289 18.7 19.2 26.43 17.50 - - -1,169Class B 1,483,384 14.9 16.4 19.63 13.55 - - 23,989

Northwest 10,349,162 17.4 20.2 21.26 18.79 228,107 287,047 126,777Class A 3,319,843 17.6 20.7 27.97 24.20 228,107 221,999 17,705Class B 4,421,247 17.8 21.0 21.88 14.48 - 65,048 97,936

Far West 949,477 5.8 5.8 NA 19.32 - 101,401 15,226Class A 613,290 7.0 7.0 NA 18.98 - 101,401 15,226Class B 336,187 3.7 3.7 NA 20.50 - - -

South 496,664 15.5 31.1 15.50 12.41 90,000 - -672Class A - - - NA NA 90,000 - -Class B 384,507 17.3 17.3 15.50 10.00 - - 228

San Antonio Total 30,995,979 14.8 18.0 21.64 18.92 780,107 388,448 226,597Class A 11,343,930 13.6 17.2 26.95 22.53 690,107 323,400 5,273Class B 13,667,367 15.8 18.4 20.96 15.07 90,000 65,048 182,429

MARKETVIEW


SAN ANTONIO OFFICE


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MARKETVIEW


CONTACTS




CBRE OFFICES



SAN ANTONIO OFFICE


MARKETVIEW

Vacancy14.6%

Steady start after a record year, pipeline still expanding





Completions22,299 SF

OVERALL NET ABSORPTION COOLED AT THE START OF 2017, TWO SUBMARKETS PULLED AHEAD

Office demand proved largest in the Far West and Northwest submarkets where their combined net absorption totaled more than 80,000 sq. ft. Furthermore, most of the larger vacancies this quarter were anticipated relocations for leases signed elsewhere last year. In terms of future demand, users seeking space remained firm and diverse with requirements totaling 1.3 million sq. ft.

VACANCY DROPPED BY 2.2% YEAR-OVER-YEAR, REACHING 14.6%

Largely attributed to a healthy second half in 2016, the office sector continued tightening as vacant space dropped significantly compared to Q1 2016. Despite recent spec deliveries, the market vacancy rate sat nearly 2.0% below the trailing 10-year-average, while Class A sat an additional 2.8% below that.

FSG ASKING RENTS PUSH NEW HIGHS, NNN QUOTES ARE BECOMING MORE COMMON

Weighted average asking rents for office product (FSG) grew 3.0% from the same time last year. Growth was largely anchored by Class A product as Class B saw a slight dip. However, the market is seeing more owners (particularly for Class A) quote asking rents on a NNN basis. When considering NNN asking rents, Class A

*Statistics exclude owner occupied properties. Arrows indicate trend from previous quarter.


Avg. Asking Rate$21.76 PSF (FSG)


and Class B averaged to $20.32 and $15.05 per sq. ft., respectively. Adding market-typical NNN expenses of $12.00 to $8.00 per sq. ft. would yield an adjusted average FSG rent of $32.00 and $23.00 per sq. ft. for Class A and Class B, respectively. It should be noted that these adjusted rents are also considerably above our reported average FSG rent.

NEW CONSTRUCTION IN CBD AFTER 25 YEARS

The underway 24-story-Frost-tower is expected to deliver 462,000 sq. ft., including 150,000 available sq. ft., by early 2019. Other projects totaling 388,268 sq. ft., most of which were speculative and in the Northwest, were also under construction bringing the total to 850,268 sq. ft. with an expected occupancy of 42%. Additional projects are expected later this year.

REGIONAL ECONOMY REMAINS STRONG

San Antonio’s regional economy remained strong due to expanding demographics and diverse employment growth. During Q1 2017 the local economy added 3,200 net jobs while its unemployment rate remained below the state average at 4.1%. Education and healthcare, professional and business services, construction, and manufacturing all saw growth above 3.0% year-over-year in March 2017.

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SAN ANTONIO OFFICE


*FSG/NNN rent averages include only properties with corresponding quoted rents. Although Class C is not included, totals are inclusive of all classes of data. Statistics exclude owner occupied properties.Source: CBRE Research, Q1 2017.

Figure 3: Largest Q1 2017 Space Absorptions


Figure 5: Q1 2017 Total Leasing Activity by Industry


Figure 4: Largest Q1 2017 Space Vacancies


Vacancy Type –Tenant Type

-30,500 CBD One Riverwalk Place ARelocation -Single

-21,000 Northeast Northwood Executive B Vacancy - Multi

-20,000 Northwest The Forum Phase I ARelocation -Single


Absorption Type –Tenant Type

46,000 Far West151 Technology Center

B Lease - Single

28,000North Central

Huntington West Phase I

A Lease - Multi

22,000 Northwest One Park Ten BLease/Expansion -Multi



(%)

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Under Construction

(SF)

Deliveries (SF)


(SF)FSG* NNN*CBD 5,124,226 16.0 18.0 20.62 18.81 462,000 - 13,002

Class A 2,108,307 11.3 13.2 25.97 NA 462,000 - -22,871Class B 1,698,814 21.3 21.9 18.74 18.81 - - 35,078

North Central 8,620,685 13.9 18.3 23.30 18.81 - 22,299 -72,854Class A 2,771,887 14.1 21.9 27.25 21.53 - - 11,733Class B 4,395,194 14.3 17.6 22.05 16.03 - - -77,107

Far North Central 2,965,414 9.8 15.7 23.29 21.57 - - -8,342Class A 2,054,314 8.4 14.5 24.92 22.09 - - -4,137Class B 846,743 12.7 17.2 24.74 19.86 - - -4,205

Northeast 2,374,060 16.5 17.6 19.80 15.11 - - -10,388Class A 476,289 18.5 18.9 25.88 17.50 - - -4,333Class B 1,468,384 15.8 16.9 19.64 12.66 - - -19,241

Northwest 10,046,577 16.2 20.0 21.31 15.91 286,867 - 37,090Class A 3,097,844 12.2 18.6 27.97 19.04 221,819 - 16,696Class B 4,356,199 18.6 21.9 21.89 14.41 650,48 - 26,889

Far West 848,076 4.9 4.9 NA 19.10 101,401 - 45,935Class A 511,889 5.7 5.7 NA 18.50 101,401 - 0Class B 336,187 3.7 3.7 NA 20.50 - - 45,935

South 496,664 15.4 31.2 15.50 12.40 - - 7,060Class A 0 0 0 NA NA - - 0Class B 384,507 17.4 17.4 15.50 10 - - 7,060

San Antonio Total 30,475,702 14.6 18.3 21.76 17.50 850,268 22,299 11,503

Class A 11,020,530 11.8 17 26.96 20.32 785,220 22,299 -2,912Class B 13,486,28 15.7 19.0 21.06 15.08 65,048 0 14,409

MARKETVIEW


SAN ANTONIO OFFICE


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MARKETVIEW


CONTACTS




CBRE OFFICES



SAN ANTONIO OFFICE


MARKETVIEW

Deliveries push up vacancy, rents still tread >$21.00 sq. ft.



Vacancy Rate16.8%

Avg. Asking Rates$21.12 PSF


Construction

*Arrows indicate change from previous quarter.


Figure 1: Asking Rate, Gross Avg. Annual and Vacancy Rate

• The new year kicked off to a slower start than last year with approximately one-fourth of the absorption over Q1 2015, posting 127,598 sq. ft. of positive net demand.

• Meanwhile, due to the delivery of four new buildings with occupancy below market level, vacancy rose another 90 basis-points (bps) to 16.8%. Inventory additions added in excess of 280,000 sq. ft. of vacant new product.

• Full service average asking rents fell for the first time in two years, falling $0.08 per sq. ft. to $21.12 per sq. ft.

• San Antonio’s office market grew by more than 320,000 sq. ft. with another 513,323 sq. ft. currently underway in the Northwest and North Central.

Coming off a nearly record year, the San Antonio office market is poised for an active 2016. The hype for the new Frost Bank Tower in the CBD is gathering more steam as plans for the conceptual design are expected to be released by midyear. After 270,000 sq. ft. of Class A product was delivered to the market, and with over 400,000 more lined up to deliver this year, premier space is moving closer to closing the gap in a market led by Class B inventory. Still, overall occupier demand is beginning to taper as the local office market closed with the lowest first quarter demand since 2012, and the lowest with positive absorption since 2009, with 127,598 sq. ft.

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513,323 SF

MARKETVIEW

The Northwest led all submarket activity and clocked up 70,135 sq. ft. of fresh tenant demand to close the first quarter with 19.9% vacancy. This was then followed by the Far West with 58,089 sq. ft. of positive growth and the Far North Central which finished with 11,931 sq. ft. Transactions that drove absorption include Time Warner leasing over 50,000 sq. ft. at One51 Office Center, CGI taking 11,319 sq. ft. at Northwest Parkway, and HEB Credit Union signing a lease for 9,000 at LockhillCrossing. The CBD had a calm quarter, slightly under the level experienced this time last year, with just over 15,000 sq. ft. of positive net absorption. The only submarket that posted negative growth for the quarter was the North Central submarket, which saw 36,938 sq. ft. returned to the market (and has space under development). This pullback was caused by The Medical Team vacating 12,000 sq. ft. at the Century building to take up new space in Energy Plaza II in the North Central, and RJ Rivera Associates moving out of 5,263 sq. ft. at the Pyramid building to occupy their new office at Callaghan Tower in Northwest.

The last time full-service average asking rents saw a decline was in Q1 2014. Rates fell $0.08 per sq. ft. and closed the quarter at $21.12 per sq. ft. This is attributed to buildings making a change to a

quoted triple net rate (NNN), and this is particularly with higher end product where the figure is then grossed up for market averages. Suburban rates fell $0.06 per sq. ft. to $21.29 per sq. ft., while the CBD saw a $0.21 per sq. ft. decrease quarter-over-quarter, and closed at 20.65 per sq. ft. Meanwhile, suburban NNN rates rose $0.31 per sq. ft. to $17.30 per sq. ft., while the NNN market average increased $0.35 per sq. ft. to $17.31 per sq. ft.

Totaling over 320,000 sq. ft., four projects completed construction in the Q1 2016. The majority of the space was delivered in the Northwest submarket with over 149,000 sq. ft. between WestRidge Two at La Cantera (129,015 sq. ft.) and Bexar County Medical Society Building (20,340 sq. ft.). Ridgewood Plaza added147,000 sq. ft. to the Far North Central submarket, while the completion of the KFW Building increased inventory in the North Central by 30,000 sq. ft. This brought year-to-date construction levels to nearly 50% of the total delivered construction in 2015, and with over 513,000 sq. ft. still under construction, 2016 is poised to see one of the highest levels of delivered construction. As of now, only 5% of product under construction is preleased, which gives prospective tenants plenty of options for newer and higher end product.

SAN ANTONIO OFFICE


Figure 2: Net Absorption by Class


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MARKETVIEW

Notable transactions from Q1 2016 include:

• WW Grainger signed a lease for 43,223 sq. ft. at Fountainhead Park Two.

• HDR Engineering moved out of 21,952 sq. ft. from 4350 Lockhill Selma.

• Time Warner leased 58,089 sq. ft. at One51 Office Centre.

• HEB Credit Union vacated 12,000 sq. ft. from One Castle Hills after leasing 9,000 sq. ft.. In Lockhill Crossing.

• Bexar County Medical Society vacated 15,038 sq. ft. from Two Twin Oaks to move into their new building.

SAN ANTONIO OFFICE

Figure 3: Market Statistics


Market Rentable Area

(SF)Total Vacant

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Total Vacancy Rate(%)

NetAbsorption

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DeliveredConstruction

(SF)

UnderConstruction

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Asking RateGross Avg. ($/SF/Yr)

CBD 5,100,035 1,132,383 22.2 15,205 - - 20.65

North Central 8,299,624 1,069,693 12.9 (36,938) 30,000 80,000 22.43

Far North Central 2,779,719 340,794 12.3 11,931 149,335 - 22.61

Northeast 1,924,652 258,878 13.5 9,176 - - 19.57

Northwest 8,938,217 1,776,064 19.9 70,135 129,015 433,323 20.44

Far West 761,990 81,691 10.7 58,089 - - -

South 473,871 82,673 17.5 - - - 15.50

Totals 28,278,108 4,742,176 16.8 127,598 326,355 513,323 21.12


ABSORPTION AND VACANCY

Just a year ago, the office market posted over 426,000 sq. ft. of positive net absorption, over 70% more than the level experiences in Q1 2016. Posting 127,598, the quarter saw its lowest first quarter of positive net absorption since 2009, which saw only 14,489 per sq. ft. of positive net absorption. Due to over 280,000 of unclaimed new product, overall vacancy rose another 90 bps, inching up to 16.8%, a level last seen in Q2 2014, as well as the second consecutive quarter of ascending vacancy.



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MARKETVIEW

UNEMPLOYMENT

Unemployment in the Alamo City rose slightly to begin the year to 3.8%, increasing 20 bps quarter-over-quarter. Even with this slight rise, unemployment levels are still 20 bps lower, or 5%, year-over-year, and a sharp decrease from just two years ago when local unemployment was 5.0%. U.S. and state levels both saw equal decreases in unemployment, with both falling 10 bps quarter-over-quarter and closing the quarter at 4.9% and 4.5% respectively.

OFFICE RENTS

As more existing and new buildings convert their asking rent conventions to a NNN basis, the market saw full-service gross rates fall $0.08 per sq. ft. quarter-over-quarter and finish at $21.12 per sq. ft. Meanwhile, NNN asking rates rose $0.35 per sq. ft., reaching $17.31 per sq. ft. Class A product recovered from the decrease experienced at the end of 2015, rising $0.21 per sq. ft. to 26.17 per sq. ft. Both CBD ($20.65 per sq. ft.) and Suburban rates ($21.29 per sq. ft.) on the other hand, fell $0.21 and $0.06 per sq. ft. quarter-over-quarter respectively.

CONSTRUCTION PIPELINE

Throughout the previous year, over 650,000 sq. ft. of new product was delivered to the market. This year has already reached nearly half of the level in the first quarter alone, with 326,355 sq. ft. of new office product having completed their construction. Over 276,000 sq. ft. of this new space was recognized as Class A product, with Ridgewood Plaza and WestRidge Two at La Cantera adding 147,000 and 129,015 sq. ft. respectively. Two smaller buildings, the BexarCounty and Medical Society building (20,340 sq. ft.), and KFW Building (30,000 sq. ft.) round out the completions. Construction levels closed the quarter at 513,313 sq. ft., with only 5% of the product under development preleased.

SAN ANTONIO OFFICE

Figure 5: Unemployment Rate

Figure 6: Asking Rates, Gross Avg. Annual


Figure 7: Construction




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CBRE OFFICE

CBRE San Antonio200 Concord Plaza, Ste. 800San Antonio, TX 78216

To learn more about CBRE research,Or to access additional research reports,Please visit the global research gateway at www.cbre.com/researchgateway.

SAN ANTONIO OFFICE

CONTACTS



Nicholas IanettaResearch Coordinator+1 210 253 [email protected]

MARKETVIEW

Year Ends with Over 650,000 Sq. Ft. of New Inventory



Vacancy Rate15.9%

Avg. Asking Rates$21.20/SF


Construction769,458 SF




• The year finished with a modest 78,781 sq. ft. of positive net absorption in Q4 2015, which increased the Y-T-D absorption just shy of 1 Million sq. ft.

• Vacancy rose 50 basis-points (bps) up to 15.9%, returning to the same level from a year ago.

• Growth in average asking rents slowed, but ended the year up $0.11 per sq. ft. to $21.20 per sq. ft.

• Two more buildings delivered to the market, adding 129,000 sq. ft. to the inventory. Year-to-date completed construction closes 2015 with over 650,000 sq. ft.

• Product under construction finished the quarter at 769,458 sq. ft.

Poised to surpass 1 million sq. ft. in Y-T-D net absorption, the San Antonio office market posted its lowest positive net absorption of the year with 78,781 sq. ft. Absorption levels also fell short of reaching the Y-T-D record high set back in 2007, finishing 2015 at 927,391 sq. ft. of positive net absorption. Despite the positive quarter, vacancy rose 50 bps quarter-over-quarter and ending the year at 15.9%, the same rate the market saw just 12 months ago. Two more buildings were added to the market, totaling 129,000 sq. ft. While this was the twelfth straight quarter of positive net absorption in the market, this also marks the second consecutive quarter where vacancy rose, the last time being Q2 and Q3 2013.

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MARKETVIEW

Even with a relatively low quarter of net absorption for the quarter, the majority of submarkets saw positive net absorption for the quarter. The market was led by the Far North Central submarket, which posted 34,052 sq. ft., followed immediately by the CBD with 33,313 sq. ft. Major deals include Lennar Homes leasing 15,409 sq. ft. at the Ridgewood Business Center II in the Far North Central, and Code Up taking 5,775 sq., ft. at the Vogue Building downtown. The highest level of negative net absorption was experienced by the South submarket, which saw a modest 16,485 sq. ft. returned to the market. Not far behind, and the only other market with negative net absorption, was the Far West submarket, with 14,400 sq. ft. of negative net absorption for the quarter. The entire negative absorption experienced in the Far West was by Sears reducing its space while moving from 46,000 sq. ft. in Building A of 151 Technology Center, into 31,600 sq. ft. of Building B.

For the third quarter in a row, growth in average rental rates slowed while increasing another $0.11 per sq. ft. on a full-service-gross (FSG) basis. They finished the quarter at $21.20 per sq. ft. which is nearly a full dollar increase year-over-year, or a 4% increase from 2014. Across submarkets, while

significant, only the North Central and CBD saw increases quarter-over-quarter, increasing $0.54 and $0.55 per sq. ft. respectively. The suburban submarket saw a $0.02 decrease quarter over.

Two more buildings delivered to the market, adding 129,000 sq. ft. of new inventory to the North Central submarket, and bringing the Y-T-D delivered construction to over 650,000 sq. ft. Completions include the Heritage Oaks Office Park III, a 109,000 sq. ft. Class A building, and the 20,000 sq. ft. building at 2810 N Loop 1604, which also had over 17,000 sq. ft. preleased at delivery. Even with the 129,000 or new product completed, construction levels increased quarter-over-quarter, finishing the year at 769,458 sq. ft. This was due to the 165,000 sq. ft. Landmark I building, which will be a neighbor to the Vista Corporate Center that broke ground the previous quarter. There is also anticipation growing for the new Frost Bank Tower, which is scheduled to break ground some time next year, as it was announced that Pelli Clarke Pelli will design the new tower.

New active users in the market added only 18,000 sq. ft. of new requirements to the market. With plenty more to fill available space.

SAN ANTONIO OFFICE




(400)

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0

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Q1 20

15

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15

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15

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15

Net Absorption (MSF)

Class A Class B

MARKETVIEW

Notable transactions from Q4 2015 include:

• Lennar Homes leased 15,409 sq. ft. at Ridgewood Business Center II.

• Sears downsized from 46,000 sq. ft. in Building A to 31,600 sq. ft. in Building B of 151 Technology Center.

• RJ Rivera Associates took 11,328 sq. ft. at Callaghan Tower.

• Aim Usa, Llc (5,222 sq. ft.) and Sage Energy Co (5,682 sq. ft.) vacated a total of 10,904 sq. ft. from One International Place.

• Atwell Hicks (4,625 sq. ft.) and Nabor Industries (5,873 sq. ft.) leased 10,498 sq. ft. at Union Square I.

SAN ANTONIO OFFICE




(SF)Total Vacant

(SF)


NetAbsorption

(SF)


(SF)

UnderConstruction

(SF)


CBD 5,100,035 1,138,342 22.3 33,313 - - 20.86

North Central 8,269,624 973,192 11.8 7,292 129,000 102,340 22.73

Far North Central 2,632,719 202,037 7.7 34,052 - 147,000 23.01

Northeast 1,924,652 261,041 13.6 23,059 - - 19.52

Northwest 8,788,862 1,638,862 18.6 11,950 - 520,118 20.30

Far West 761,990 154,180 20.2 (14,400) - - -

South 473,871 82,485 17.5 (16,485) - - 15.50

Totals 27,951,753 4,449,897 15.9 78,781 129,000 769,458 21.20



While Q4 2015 posted the lowest level of the year, the office market completed its third consecutive year of every quarter posting positive net absorption. The 78,781 sq. ft. experienced this quarter brought the year-to-date absorption up to 927,391 sq. ft. which fell 51,175 sq. ft. from the record high set back 2007. The market was led by North Central submarket (34,052 sq. ft.), and the CBD (33,313 sq. ft.) Vacancy actually saw an increase quarter-over-quarter of 50 bps, and finished the year at 15.9%. This was mainly due to the delivery of Heritage Oaks Office Park III adding over 109,000 sq. ft. of vacant space to the market.



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(500)

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900

1,100

2007 2008 2009 2010 2011 2012 2013 2014 2015

Vacancy Rate(%)Net Absorption (000s sq. ft. )


MARKETVIEW

UNEMPLOYMENT

After a quarter that saw unemployment rise, Q4 2015 ended the year by falling back to 3.6%, a change of 10 bps and the same level back from Q2 2015. As projected at the beginning of the year, this attributed to an over 3% change year-over-year in local job growth. This is a 50 bps change from the end of last year. The national unemployment level saw the same change as the local level, falling 10 bps from 5.1% to 5.0% quarter-over-quarter. The state level saw unemployment rise 50 bps since the month of August, and finished the year at 4.6%.

OFFICE RENTS

Average asking rates grew again to finish the year, rising another $0.11 per sq. ft. on a FSG basis. This increased the already record high up to $21.20 per sq. ft. Class A product fell slightly, down to $25.96 per sq. ft. The CBD asking rates rose $0.55 per sq. ft. up to $20.86 per sq. ft., while the Suburban market also dipped marginally down to $21.35 per sq. ft. Class B and C product finished the year at $20.50 and $17.30 per sq. ft. respectively.

OFFICE PRODUCT

With 129,000 sq. ft. added to the market during the quarter, the Y-T-D delivered construction hit over 650,000 sq. ft., easily making 2015 one of the strongest years in regards to new product coming on to the market. The completion of Heritage Oaks Business Park II (109,000 sq. ft.) and 2810 N Loop 1604 (20,000 sq., ft.) rounded out the year with only 17,000 sq. ft. in the latter building having been preleased.

With only one new project breaking ground, construction levels still increased quarter-over-quarter, up to 769,458 sq. ft. This was due to the Landmark I development starting construction, which is set to add 165,000 sq. ft. of Class A product to the Northwest submarket.

SAN ANTONIO OFFICE








16

17

18

19

20

21

22

23

24

25

26

2007 2008 2009 2010 2011 2012 2013 2014 Q4 2015

$/SF

Class A Class B

0

200

400

600

800

1,000

1,200

1,400

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2008 2009 2010 2011 2012 2013 2014 Q4 2015

(000s sq. ft.)


1

2

3

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013 2014 Q4 2015

%

San Antonio Texas U.S.

MARKETVIEW


CBRE OFFICE



SAN ANTONIO OFFICE

CONTACTS




MARKETVIEW

2015: The Year of Strongest Demand On Record



Vacancy Rate15.4%







• Q3 2015 saw over 200,000 sq. ft. of positive net absorption, year-to-date net absorption surpassing 800,000 sq. ft.

• Vacancy remained stable at 15.4%, but has fallen a total of 120 basis points (bps) year-over-year.

• Average asking rents increased another $0.14 and surpassed $21.00, finishing the quarter at $21.09 per sq. ft.

• Year-to-date completed construction has now reached over 500,000 sq. ft., with nearly 200,000 sq. ft. expected to be completed by the end of the year.


After posting near identical absorption to the previous quarter, Q3 2015 had another strong quarter of over 200,000 sq. ft. of positive net absorption, closing the quarter at 210,974 sq. ft. This brings the year-to-date net absorption up to 848,610 sq. ft., which is only 129,956 sq. ft. from surpassing the highest level reached throughout a year. Vacancy remained stagnant quarter-over-quarter, remaining at 15.4%, as vacancy has dropped a total of 50 bps so far in 2015. This snaps the seven consecutive quarter streak in which vacancy decreased, while Q3 2015 saw the eleventh consecutive quarter with positive net absorption.

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22

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07Q2

2007

Q3 20

07Q4

2007

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08Q2

2008

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08Q4

2008

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2009

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2009

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2011

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14Q2

2014

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2015

Q3 20

15

Vacancy Rate(%)$/SF


MARKETVIEW

As with the previous quarter, the Northwest submarket led all other submarkets with 92,441 sq. ft. of positive net absorption, making up over half of the total net absorption for the quarter. The Northwest was followed by the Far North Central, which posted 50,630 sq. ft., and the CBD, which bounced back from a quarter of negative net absorption, with 43,041 sq. ft. Major deals include WellMed taking 40,996 sq. ft. in The Oaks at University Park III, HEB leasing 17,174 sq. ft. at Cypress Tower, and Boral taking 27,515 sq. ft. at the newly completed Ridgewood Business Center II. This quarter also saw every other submarket, with the exception of the Far West submarket that posted zero net absorption, close the quarter with positive net absorption.

Average asking rates in the market rose another $0.14 per sq. f.t , which is 50% of the increase experienced in the previous quarter. Rental rates finished the quarter at $21.09 per sq. ft. on a full-service-gross (FSG) basis. Average asking rates have now increased by nearly a full $1.00 per sq. ft. year-over-year. As with Q2 2015, all classes across the market saw increases in their respective average asking rates quarter-over-quarter, and also witnessed the Far North Central and

Northeast as the submarkets that saw further decreases in their rates. Increases occurred in the Northwest, North Central and the CBD, while the South saw no change.

The quarter saw development activity similar to the previous quarter, with Q3 2015 delivering two buildings to the market, which added 162,000 sq. ft. to existing inventory. The One51 Office Centre (108,180 sq. ft.) in the Far West, as well as the Ridgewood Business Center II (54,217 sq. ft.) brought the year-to-date total construction completed up to 530,092 sq. ft. Only Ridgewood Business Center had preleasing by the time of completion, with Boral taking 27,515 sq. ft. Product currently under development finished at 733,458, with Galleria Venture breaking ground on the Vista Corporate Center (158,000 sq. ft.) in the Northwest. Add in the Pond Hill development (68,733 sq. ft.), and Q3 2015 saw over 226,000 sq. ft. to construction levels. Landmark 1 (165,000 sq. ft.) is also set to break ground by the end of the year.

Demand seems to have slowed down a bit in the market, as there were no new significant active requirements added to the market this quarter.

SAN ANTONIO OFFICE




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Q1 20

15

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15

Q3 20

15

Net Absorption (000s sq. ft.)


MARKETVIEW

Notable deals from Q3 2015 include:

• HEB leased 17,174 sq. ft. at Cypress Tower.• Healthsmart signed a leased for 27,515 sq. ft. at

RidgeWood Park II.• WellMed leased 40,996 sq. ft. at The Oaks at

University Park III.• The Trust Company vacated 7,181 sq. ft. at Mc

Combs Plaza.• Accenture took 45,137 sq. ft. at the Clarke

American Building.• Goetting Engineering signed a lease for 9,333

sq. ft. at the Blanco North Executive Center.

SAN ANTONIO OFFICE




(SF)Total Vacant

(SF)


NetAbsorption

(SF)


(SF)

UnderConstruction

(SF)


CBD 5,100,035 1,113,061 21.8 43,041 - - 20.31

North Central 8,140,624 877,537 10.8 20,255 - 231,340 22.29

Far North Central 2,632,719 237,584 9.0 50,630 54,217 147,000 23.82

Northeast 1,924,652 285,408 14.8 2,630 - - 19.87

Northwest 8,788,862 1,555,992 17.7 92,441 - 355,118 20.69

Far West 652,790 139,780 21.4 0 101,180 - -

South 473,871 66,188 14.0 1,977 - - 15.50

Totals 27,713,553 4,223,260 15.4 210,974 162,397 733,458 21.09



After three positive quarters, net absorption is approaching a record high for the year. The year-to-date net absorption for 2015 reached 848,610 sq. ft., 129,000 sq. ft. below the record high for a year set back in 2007, when there was just under one million sq. ft. of positive net absorption. Positive net absorption for the quarter closed at 210,974 sq. ft., but vacancy saw no change quarter-over-quarter, stalling at 15.4%. The Northwest submarket once again led the market with 92,441 sq. ft. of positive net absorption, followed by the Far North Central and CBD with 50,630 and 43,041 sq. ft., respectively.



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(500)

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100

300

500

700

900

1,100

2007 2008 2009 2010 2011 2012 2013 2014 2015



MARKETVIEW

UNEMPLOYMENT

Unemployment rose slightly quarter-over-quarter by 10 bps, and finished the quarter at 3.7%. This is still 100 bps lower than where it was a year ago. Busines.com even listed San Antonio as the seventh best city in the country to find a job, falling only behind Austin when compared to the other major Texas cities. Statewide unemployment reached its lowest level since 2001, falling to 4.1% in the month of August. This was attributed to over 13,000 jobs being added throughout the state, led by the Hospitality and Professional & Business services industries. The national level saw the biggest drop, falling 40 bps to 5.1%.

OFFICE RENTS

While growth of rental rates have continued to slow, they are still on the rise as average asking rates rose another $0.14 per sq. ft. on a FSG basis. While this is half of the growth experienced in the previous quarter, asking rates also hit a milestone by surpassing $21.00 per sq. ft. for the first time, finishing the quarter at $21.09 per sq. ft. Class A product broke the $26.00 mark, climbing $0.31 to $26.04 per sq. ft. While Class B saw a decrease quarter-over-quarter falling to $20.58, Class C experienced another increase up to $17.36 per sq. ft.

OFFICE PRODUCT

Over 160,000 sq. ft. of office product was added to the market in Q3 2015, with the completion of One51 Office Centre (108,180 sq. ft.) and Ridgewood Business Center II (54,217 sq. ft.). The only preleasing prior to completion was by Boral Inc, which leased 27,000 sq. ft. at Ridgewood. Total completed construction for the year finishes the quarter at over 530,000 sq. ft. The market also saw Vista Corporate Center break ground, which is set to add 158,000 sq. ft., as well as Pond Hill (68,000 sq. ft.), which bring the product under construction levels up to 733,458 sq. ft. The Vista Corporate Center will also have a neighbor down the road in the coming quarter, when Landmark I breaks ground on development, adding another 165,000 sq. ft.

SAN ANTONIO OFFICE



Source: CBRE, Q3 2015.





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5

6

7

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9

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2007 2008 2009 2010 2011 2012 2013 2014 Q3 2015

%

U.S. Texas San Antonio

16

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19

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22

23

24

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26

2007 2008 2009 2010 2011 2012 2013 2014 Q3 2015

$/SF


0

200

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800

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1,400

1,600

2008 2009 2010 2011 2012 2013 2014 Q3 2015

(000s sq. ft.)


MARKETVIEW


CBRE OFFICE



SAN ANTONIO OFFICE

CONTACTS




MARKETVIEW

2015: The Year of Strongest Demand On Record



Vacancy Rate15.4%







• Q3 2015 saw over 200,000 sq. ft. of positive net absorption, year-to-date net absorption surpassing 800,000 sq. ft.

• Vacancy remained stable at 15.4%, but has fallen a total of 120 basis points (bps) year-over-year.

• Average asking rents increased another $0.14 and surpassed $21.00, finishing the quarter at $21.09 per sq. ft.

• Year-to-date completed construction has now reached over 500,000 sq. ft., with nearly 200,000 sq. ft. expected to be completed by the end of the year.


After posting near identical absorption to the previous quarter, Q3 2015 had another strong quarter of over 200,000 sq. ft. of positive net absorption, closing the quarter at 210,974 sq. ft. This brings the year-to-date net absorption up to 848,610 sq. ft., which is only 129,956 sq. ft. from surpassing the highest level reached throughout a year. Vacancy remained stagnant quarter-over-quarter, remaining at 15.4%, as vacancy has dropped a total of 50 bps so far in 2015. This snaps the seven consecutive quarter streak in which vacancy decreased, while Q3 2015 saw the eleventh consecutive quarter with positive net absorption.

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14

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22

Q1 20

07Q2

2007

Q3 20

07Q4

2007

Q1 20

08Q2

2008

Q3 20

08Q4

2008

Q1 20

09Q2

2009

Q3 20

09Q4

2009

Q1 20

10Q2

2010

Q3 20

10Q4

2010

Q1 20

11Q2

2011

Q3 20

11Q4

2011

Q1 20

12Q2

2012

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12Q4

2012

Q1 20

13Q2

2013

Q3 20

13Q4

2013

Q1 20

14Q2

2014

Q3 20

14Q4

2014

Q1 20

15Q2

2015

Q3 20

15

Vacancy Rate(%)$/SF


MARKETVIEW

As with the previous quarter, the Northwest submarket led all other submarkets with 92,441 sq. ft. of positive net absorption, making up over half of the total net absorption for the quarter. The Northwest was followed by the Far North Central, which posted 50,630 sq. ft., and the CBD, which bounced back from a quarter of negative net absorption, with 43,041 sq. ft. Major deals include WellMed taking 40,996 sq. ft. in The Oaks at University Park III, HEB leasing 17,174 sq. ft. at Cypress Tower, and Boral taking 27,515 sq. ft. at the newly completed Ridgewood Business Center II. This quarter also saw every other submarket, with the exception of the Far West submarket that posted zero net absorption, close the quarter with positive net absorption.

Average asking rates in the market rose another $0.14 per sq. f.t , which is 50% of the increase experienced in the previous quarter. Rental rates finished the quarter at $21.09 per sq. ft. on a full-service-gross (FSG) basis. Average asking rates have now increased by nearly a full $1.00 per sq. ft. year-over-year. As with Q2 2015, all classes across the market saw increases in their respective average asking rates quarter-over-quarter, and also witnessed the Far North Central and

Northeast as the submarkets that saw further decreases in their rates. Increases occurred in the Northwest, North Central and the CBD, while the South saw no change.

The quarter saw development activity similar to the previous quarter, with Q3 2015 delivering two buildings to the market, which added 162,000 sq. ft. to existing inventory. The One51 Office Centre (108,180 sq. ft.) in the Far West, as well as the Ridgewood Business Center II (54,217 sq. ft.) brought the year-to-date total construction completed up to 530,092 sq. ft. Only Ridgewood Business Center had preleasing by the time of completion, with Boral taking 27,515 sq. ft. Product currently under development finished at 733,458, with Galleria Venture breaking ground on the Vista Corporate Center (158,000 sq. ft.) in the Northwest. Add in the Pond Hill development (68,733 sq. ft.), and Q3 2015 saw over 226,000 sq. ft. to construction levels. Landmark 1 (165,000 sq. ft.) is also set to break ground by the end of the year.

Demand seems to have slowed down a bit in the market, as there were no new significant active requirements added to the market this quarter.

SAN ANTONIO OFFICE




(400)

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(200)

(100)

0

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400

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Q2 20

07

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07

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08

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08

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08

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09

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09

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09

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09

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11

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11

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11

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12

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13

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13

Q3 20

13

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13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15



MARKETVIEW


• HEB leased 17,174 sq. ft. at Cypress Tower.• Healthsmart signed a leased for 27,515 sq. ft. at

RidgeWood Park II.• WellMed leased 40,996 sq. ft. at The Oaks at

University Park III.• The Trust Company vacated 7,181 sq. ft. at Mc

Combs Plaza.• Accenture took 45,137 sq. ft. at the Clarke

American Building.• Goetting Engineering signed a lease for 9,333

sq. ft. at the Blanco North Executive Center.

SAN ANTONIO OFFICE




(SF)Total Vacant

(SF)


NetAbsorption

(SF)


(SF)

UnderConstruction

(SF)


CBD 5,100,035 1,113,061 21.8 43,041 - - 20.31

North Central 8,140,624 877,537 10.8 20,255 - 231,340 22.29

Far North Central 2,632,719 237,584 9.0 50,630 54,217 147,000 23.82

Northeast 1,924,652 285,408 14.8 2,630 - - 19.87

Northwest 8,788,862 1,555,992 17.7 92,441 - 355,118 20.69

Far West 652,790 139,780 21.4 0 101,180 - -

South 473,871 66,188 14.0 1,977 - - 15.50

Totals 27,713,553 4,223,260 15.4 210,974 162,397 733,458 21.09



After three positive quarters, net absorption is approaching a record high for the year. The year-to-date net absorption for 2015 reached 848,610 sq. ft., 129,000 sq. ft. below the record high for a year set back in 2007, when there was just under one million sq. ft. of positive net absorption. Positive net absorption for the quarter closed at 210,974 sq. ft., but vacancy saw no change quarter-over-quarter, stalling at 15.4%. The Northwest submarket once again led the market with 92,441 sq. ft. of positive net absorption, followed by the Far North Central and CBD with 50,630 and 43,041 sq. ft., respectively.



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(500)

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500

700

900

1,100

2007 2008 2009 2010 2011 2012 2013 2014 2015



MARKETVIEW

UNEMPLOYMENT

Unemployment rose slightly quarter-over-quarter by 10 bps, and finished the quarter at 3.7%. This is still 100 bps lower than where it was a year ago. Busines.com even listed San Antonio as the seventh best city in the country to find a job, falling only behind Austin when compared to the other major Texas cities. Statewide unemployment reached its lowest level since 2001, falling to 4.1% in the month of August. This was attributed to over 13,000 jobs being added throughout the state, led by the Hospitality and Professional & Business services industries. The national level saw the biggest drop, falling 40 bps to 5.1%.

OFFICE RENTS

While growth of rental rates have continued to slow, they are still on the rise as average asking rates rose another $0.14 per sq. ft. on a FSG basis. While this is half of the growth experienced in the previous quarter, asking rates also hit a milestone by surpassing $21.00 per sq. ft. for the first time, finishing the quarter at $21.09 per sq. ft. Class A product broke the $26.00 mark, climbing $0.31 to $26.04 per sq. ft. While Class B saw a decrease quarter-over-quarter falling to $20.58, Class C experienced another increase up to $17.36 per sq. ft.

OFFICE PRODUCT

Over 160,000 sq. ft. of office product was added to the market in Q3 2015, with the completion of One51 Office Centre (108,180 sq. ft.) and Ridgewood Business Center II (54,217 sq. ft.). The only preleasing prior to completion was by Boral Inc, which leased 27,000 sq. ft. at Ridgewood. Total completed construction for the year finishes the quarter at over 530,000 sq. ft. The market also saw Vista Corporate Center break ground, which is set to add 158,000 sq. ft., as well as Pond Hill (68,000 sq. ft.), which bring the product under construction levels up to 733,458 sq. ft. The Vista Corporate Center will also have a neighbor down the road in the coming quarter, when Landmark I breaks ground on development, adding another 165,000 sq. ft.

SAN ANTONIO OFFICE








1

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3

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2007 2008 2009 2010 2011 2012 2013 2014 Q3 2015

%


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23

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26

2007 2008 2009 2010 2011 2012 2013 2014 Q3 2015

$/SF


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200

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600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012 2013 2014 Q3 2015

(000s sq. ft.)


MARKETVIEW


CBRE OFFICE



SAN ANTONIO OFFICE

CONTACTS




MARKETVIEW

Vacancy Slides as Tenant Demand Hits Record High



Vacancy Rate15.4%







• The first half of 2015 has been the strongest ever recorded, edging out the previous year with 637,636 sq. ft. of year-to-date positive net absorption. This caused vacancy to fall to 15.4%. Asking rents have also surpassed previous record highs, as the average increased another $0.28 per sq. ft. to $20.95 per sq. ft. Another two buildings delivered to the market, as over 200,000 sq. ft. was added to existing inventory. This brings the year-to-date total of completed construction up to 367,695 sq. ft., already surpassing the previous year by over 130,000 sq. ft. Construction levels finished the quarter at 642,122 sq. ft., with multiple projects expected to be completed by the end of the year.

With another strong showing in Q2 2015, which posted 211,227 sq. ft. of positive net absorption, this year has seen the highest recorded levels of absorption over the first two quarters. This brings the year-to-date absorption up to 637,636 sq. ft., which surpassed the highest level reached the same time last year when nearly 630,000 sq. ft. was absorbed from the market. The quarter closed with vacancy falling 10 basis points (bps) quarter-over-quarter to 15.4%. This is the lowest level vacancy has seen since 2007, when it was below 15%. This also marks the sixth consecutive quarter that vacancy has gone down, as well as the tenth straight quarter that posted positive net absorption.

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Q1 20

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MARKETVIEW

While demand did not increase at the same rate seen in Q1 2015, there was still over 130,000 sq. ft. of new user requirements added to the market. The market has also seen action in companies moving into the city, highlighted by the German biotech company Cytocentric Biosciences moving its headquarters from Rostock, Germany, bringing 300 jobs into the city.

The Northwest submarket saw the majority of positive net absorption for the quarter, posting 158,591 sq. ft., or 61% of the total net absorption for Q2 2015. Major drivers of the absorption was BCFS leasing 36,400 sq. ft. at the Abilene Building, as well as the completion of two buildings (Lockhill Crossing and The Oaks at University Business Park III) with roughly 60,000 sq. ft. preleased by the time of completion. This was followed by the North Central submarket, which posted 88,005 sq. ft. of positive net absorption. Major deals include GSA taking the entire building at Castle Hills Executive Plaza, and HDE leasing 18,106 sq. ft. at the Spectrum Building.

The quarter saw citywide average asking rates not only surpass the record high set in 2012, but also nearly broke the $21.00 per sq. ft. mark, with

Q2 2015 seeing rates rise another $0.28 per sq. ft. on a full-service-gross (FSG) basis. Rates closed the quarter at 20.95 per sq. ft., exceeding the previous record high by $0.10 per sq. ft., when if was $20.85 back in Q1 2012. The market saw increases across all building classes, but mixed changes throughout submarkets as two submarkets saw decreases (the Far North Central and Northeast), while three saw increases, including the CBD marking the first time in three quarters it saw rates rise.

Two buildings saw construction completed, adding over 200,000 sq. ft. to the market. LockhillCrossing, (126,000 sq. ft.) and The Oaks at University Park III (80,500 sq. ft.), bring the total product added to the market for 2015 up to 367,695 sq. ft. This surpasses the amount delivered in the entirety of the previous year, when just over 315,000 sq. ft. was added to the market. The developments were delivered nearly 30% preleased, highlighted by WellMed taking 39,000 sq. ft. at The Oaks. Major news coming out of downtown is the city coming to an agreement with Weston and Frost Bank for a new 450,000 sq. ft. office tower to be built. Frost Bank is set to relocate their headquarters into the building and take 60% of the space. This will be the first office tower to be built in the CBD since the 1980s.

SAN ANTONIO OFFICE




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MARKETVIEW

Notable deals from Q 2015 include:

• Strasburger Price Oppenheimer Blend LLP vacated a total of over 45,000 sq. ft. from Travis Park Plaza and Bank of America Plaza.

• BCFS signed a lease for 36,400 sq. ft. at the Abilene Building.

• HDR took 18,106 sq. ft. at the Spectrum Building .

• GSA leased the entire Castle Hills Executive Plaza for 34,796 sq. ft.

• InGenesis moved out of 17,500 sq. ft. at 6609 Blanco.

SAN ANTONIO OFFICE




(SF)Total Vacant

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CBD 5,100,035 1,132,106 22.3 (19,228) - - 19.96

North Central 8,140,624 915,724 11.2 61,102 - 211,340 22.22


Northeast 1,924,652 288,038 15.0 (15,889) - - 19.88

Northwest 8,788,862 1,624,514 18.5 163,211 207,195 128,385 20.54

Far West 544,610 31,600 5.8 0 - 101,180 -

South 473,871 66,188 14.0 8,500 - - 15.50

Totals 27,551,156 4,251,408 15.4 211,227 207,195 642,122 20.95



So far this year, the first two quarters have posted the highest recorded levels of year-to-date net absorption, reaching 637,636 sq. ft. absorbed from the market. Vacancy fell 10 bps quarter-over-quarter and closed at 15.4%. The market was led by the Northwest submarket, which posted 163,211 sq. ft. of positive net absorption, and was followed by the North Central with 61,102 sq. ft. The Northeast and CBD each saw modest negative absorption of 15,889 and 19,228 sq. ft. respectively. Class B product led the market, while Class A posted negative net absorption for the quarter.



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MARKETVIEW

UNEMPLOYMENT

So far, the year has seen unemployment fall below 4%, as Q2 2015 finished at 3.6%. This is a decrease of 70 bps quarter-over-quarter, and has brought the total drop up to 100 bps year-to-date. This is the first time since 2008 that the unemployment rate fell below 4%. As a testament to the market’s economy, the unemployment rate stayed below 8% throughout the recession. State and National levels have also seen dips in their respective rates, falling 40 to 4.2%, and 10 bps to 5.5% respectively. According to Wells Fargo, job growth at the state level has remained steady a 2.5% year-over-year, adding 39,200 jobs so far this year. This is significantly lower than the level experienced this time last year, when the state added 160,200 jobs.

OFFICE RENTS

Average asking rates in that market rose another $0.28 per sq. ft. on a FSG basis, surpassing the previous high set back in Q1 2012. Rates rose to $20.95 per sq. ft., $0.10 higher than the previous record high for the market, and all classes saw increase in their respective rates. Class A space finished the quarter at 25.73 per sq. ft., while Class B and C product closed at 20.38 and $17.18 per sq. ft. respectively.

OFFICE PRODUCT

The quarter saw two more buildings delivered to the market, adding over 200,000 of inventory to the market. Both Lockhill Crossing (126,000 sq. ft.) and the Oaks at University Business Park II (80,569 sq. ft.) were completed in the Northwest submarket, and were nearly 30% preleased by the time of completion. The quarter also saw big news come out of the CBD, with the city’s deal with Frost Bank and Weston to build a 450,000 sq. ft. office tower. This will be the first major office project downtown since the 80s, and has developers hoping this will help drive further development. Frost Bank has plans to occupy roughly 60% of the building by relocating from their current location.

SAN ANTONIO OFFICE







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CBRE OFFICE



SAN ANTONIO OFFICE

CONTACTS



MARKETVIEW

Asking rates continue to approach record high



Vacancy Rate15.5%

Avg. Asking Rates20.67 $/SF






• Citywide average asking rates rose another $0.33 per sq. ft. quarter-over-quarter, starting off the new year at $20.67 per sq. ft. This brings the brings the markets asking rate only $0.18 away from the record high set back in 2011. The positive absorption experienced this quarter arks the third consecutive year that began with positive net absorption, and if this trend follows the past two years, we could see another three quarters of positive absorption for 2015. This also caused vacancy to continue to tighten, finishing the quarter at 15.6%. Construction still remains at a high level, totaling over 900,000 sq. ft. currently under development

For the third consecutive year, the San Antonio office market started off the year with a quarter of positive net absorption with Q1 2015 closing with the strongest first quarter ever recorded at 426,409 sq. ft. This also marks the ninth straight quarter of positive net absorption. Vacancy continues to fall, this time another 40 basis points (bps) quarter-over-quarter and ending the quarter at 15.5%, matching the lowest point since 2010. This also marks the fifth straight quarter where the market's vacancy rate declined, and has fallen 100 bps year-over-year. Vacant space in the market now stands at just over 4.2 million sq. ft.

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MARKETVIEW

The quarter also saw it’s fair share of increased demand, as user requirements saw a jump from the previous quarter. Total requirements in the market rose over 600,000 sq. ft. from Q4 2014, with a 300,000 sq. ft. request driving the spike. Total office requirements ended the quarter at over 4 million sq. ft., showing that the market is quite in demand and should see tenants fill available space.

The majority of absorption seen was generally focused in the newest submarkets, as the market was led by the Far West and Far North Central. Each finished the quarter with 160,500 sq. ft. and 157,418 sq. ft. of positive net absorption respectively. Large contributions include the completions of 8100 Potranco, which added the entire 160,500 sq. ft. of the Far Wests absorption for the quarter. The Far North also had its absorption largely affected by a new building being added to the market, with the sale leaseback of iHeart Communications building at 20880 Stone Oak Pky. The only submarket to experience negative net absorption was the South, which returned only 8,500 sq. ft. to the market.

Citywide average asking rates continued to rise towards the record high set back in 2010,

increasing $0.33 per sq. ft. quarter over quarter and closed at 20.67 per sq. ft. While all other submarkets saw either an increase or no change in their average asking rates, the experienced a decrease by only $0.01and is also the second consecutive quarter of downtown seeing falling rates.to $20.34 per sq. ft. on a full-service gross (FSG) basis.

The year saw its first building delivered to the market, with the completion of the 160,500 sq. ft. 8100 Potranco building. The building was fully leased by the U.S. Government at the time development finished. With no new developments breaking ground this quarter, construction levels now stand at 746,000 sq. ft. There are still multiple buildings that are set to deliver within the next six months, which could total over 400,000 sq. ft. of new product delivered to the market. These developments include the 116,000 sq. ft. Lockhill Crossing building in the Northwest, and the 147,000 sq. ft. Ridgewood Plaza in the Far North. There was also a bit of pre-leasing for product that is currently under construction, as Boral Inc. signed a lease for 40,446 sq. ft. at the Ridgewood Business Center - Building II. Pre-leased construction finished at 136,000 sq. ft., or just under 20%.

SAN ANTONIO OFFICE




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MARKETVIEW

the largest share of positive net absorption.


• Pilgrim Mortgage signed a lease for 6,861 sq. ft. at Uptown Square.

• Davidson, Troilo, Ream & Garza PC took 21,664 sq. ft. at The Pyramid Building.

• Boral Inc. pre-leased 40,446 sq. ft. at the Ridgewood Business Center Building II.

• Southcross Energy Partners LP leased 14,058 sq. ft. at the Commons at Concord Park Building 3.

SAN ANTONIO OFFICE




(SF)Total Vacant

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NetAbsorption

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CBD 5,100,035 1,071,983 21.0 24,853 - - 19.66

North Central 8,140,624 1,010,812 12.4 73,418 - 109,000 22.07


Northeast 1,924,652 277,439 14.4 8,207 - - 19.97

Northwest 8,581,667 1,5267,129 18.3 7,513 - 335,580 20.04

Far West 544,610 31,600 5.8 160,500 160,800 101,180 -

South 473,871 75,608 16.0 (8,500) - - 15.50

Totals 27,343,961 4,247,446 15.5 426,409 160,800 746,977 20.67



With the strongest first quarter recorded so far, Q1 2015 posted a positive net absorption of 426,049,553 sq. ft. This caused the vacancy rate to fall a total of 40 bps and close at 15.5%. All but one submarket, the South, recorded positive gains for the quarter. This was led by the Far North Central submarket, posting 160,500 sq. ft., which was followed very closely by the Far North Central (157,418 sq. ft.). Absorption was positive across all building classes as well, with Class B space, which makes up roughly 44% of the entire market, had



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MARKETVIEW

UNEMPLOYMENT

Since the end of 2013, the San Antonio-New Braunfels seasonally adjusted unemployment rate has fallen a total of 150 bps, as Q1 2015 saw unemployment fall yet another 30 basis points to 4.3%. At this rate, the city could see the unemployment rate match 4.0% set back in 2007. The decrease was also seen at the national levels, which fell 20 bps to finish the quarter 5.6% The state is just behind the local level at 4.6% after falling 50 bps quarter-over-quarter. The state and national level has followed the same trend as the city since 2013, posting a total drop of 160 and 170 bps respectively.

OFFICE RENTS

After falling from its record high in 2012, citywide average asking rates have been on a steady climb, and Q1 2015 is no exception. Average rates improved another $0.33 per sq. ft. quarter-over-quarter, posting $20.67 per sq. ft. Class A rates led the charge with a $0.46 per sq. ft. rise , topping $25.00 per sq. ft. mark. Class B product then followed with a $0.15 per sq. ft. increase to $20.27 per sq. ft., and Class C closed the quarter at $16.95 after an $0.11 per sq. ft. rise.

OFFICE PRODUCT

The year started off with the delivery of 8100 Potranco to the market, which added 160,500 sq. ft. of office product. This project was also 100% leased at the time of its delivery by the U.S. Government. While there were new projects that broke ground throughout the quarter, development still remains active in the market. With just over 760,00 sq. ft. under construction, there is almost roughly 1 million sq. ft. of office product proposed to the city, with most of the space being focused in the Northwest. Furthermore, there are at least three projects that are anticipated to be delivered within the next six months, which would bring over 300,000 sq. f.t of new product to the market.

SAN ANTONIO OFFICE








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SAN ANTONIO OFFICE

CONTACTS

Lynn CirilloResearch Operations [email protected]


MARKETVIEW

Net absorption closes 2014 at highest levels since 2007



Vacancy Rate15.9%

Avg. Asking Rates20.34 $/SF






• The office market finished the year with over 800,000 sq. ft. of positive net absorption, the highest level seen since 2007, after posting 201,343 sq. ft. of net absorption in Q4 2014. This brought total vacancy down to 15.9%. After delivering two buildings for a total of over 190,000 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 900,000 sq. ft. of new office product under construction, an amount San Antonio has not experienced since 2009.

• San Antonio was named the top city for military retirees by a new study commissioned by USAA And the U.S. Chamber of Commerce.

Following a quarter of modest positive net absorption, 2014 ended with a much stronger one. Q4 2014 saw positive net absorption of 201,343 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 70 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.

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MARKETVIEW

In a year that has seen pre-leasing in product under construction reach 55%, pre-leased space fell by the end of the year, mainly due to product being delivered to the market and other projects breaking ground with no pre-leasing. The quarter finished with 315,027 sq. ft. pre-leased, which accounts for almost 33% of product currently under construction.

The market was led by the Northwest submarket closing the quarter with 105,502 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 129,015 sq. ft. in Q4 2014. This was followed by 72,110 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 2012, citywide average asking rates in the market rose for the third consecutive quarter. Q4 2014 saw

rates increase $0.24 per sq. ft. quarter-over-quarter, up to $20.34 per sq. ft. on a full-service gross (FSG) basis. This is more than double the rise experienced in Q3 2014. The only submarkets to see average asking rates fall were both the CBD and the South submarkets, which ended the quarter at $19.67 per sq. ft. and $15.50 per sq. ft., respectively.

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 250 W Nottingham. The 68,000 sq. ft. building delivered 100% preleased to multiple tenants. Also, Westridge One at La Cantera delivered in the Northwest and, as with 250 W Nottingham, was 100% preleased to Harland Clarke. With the completion of Westridge One, Westridge Two began construction, which will add another 128,700 sq. ft. to the Northwest. One51 Office Centre broke ground in the Far West and will add 100,000 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 2015, combining for over 300,000 sq. ft. added to the market.

SAN ANTONIO OFFICE


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MARKETVIEW

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 2014 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 11,168 sq. ft. at 4350

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.

SAN ANTONIO OFFICE




(SF)Total Vacant

(SF)


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CBD 5,100,035 1,164,038 22.8 24,977 - - 19.67

North Central 8,086,835 1,009,112 12.5 72,110 68,000 - 21.87

Far North Central 2,458,355 217,101 8.8 (1,768) - 364,000 22.91

Northeast 1,924,652 285,646 14.8 (4,886) - - 19.88

Northwest 8,581,667 1,525,075 17.8 105,502 129,015 335,580 19.61

Far West 384,110 31,600 8.2 0 - 260,500 -

South 473,871 67,108 14.2 5,408 - - 15.50

Totals 27,009,525 4,299,680 15.9 201,343 197,015 960,080 20.34



While still not as strong as the first two quarters of the year, Q4 2014 saw an improvement in net absorption quarter-over-quarter by finishing at 201,343 sq. ft. This brought the annual total up to 864,215 sq. ft., marking the highest level since 2007. 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 105,502 sq. ft. Negative net absorption was very modest, with only two submarkets returning just over 6,000 sq. ft. combined. This was led by the Northeast with

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MARKETVIEW

UNEMPLOYMENT

After seeing unemployment remain stagnant in the previous quarter, rates saw a slight decrease of 10 bps in the month of October. The San Antonio-New Braunfels seasonally adjusted unemployment rate dipped slightly to 4.6%, matching its lowest levels since the end of 2008. Unemployment also continued its downward trend at the national level, falling another 40 bps to 5.8%. State unemployment levels remained steady at 5.1%.

OFFICE RENTS

Citywide asking rates inched closer to the 2012 record high, as average rates rose another $0.24 per sq. ft. up to $20.34 per sq. ft. Since the beginning of 2014, 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 $0.34 per sq. ft. quarter-over-quarter. This was followed by Class B rates, which matched the growth seen by the overall market at $0.24 per sq. ft., and finally Class A product with a $0.09 per sq. ft. increase.

OFFICE PRODUCT

The San Antonio office market saw the delivery of two more projects, with both totalling over 190,000 sq. ft. and brought the total for delivered product in 2014 to over 200,000 sq. ft. The North Central saw the completion of 250 W Nottingham Pl (68,000 sq. ft.) and the Northwest with Westridge One (129,015 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 960,080 sq. ft. Westridge Two is set to add another 128,700 sq. ft., while One51 Office Centre will add 100,000 sq. ft. in the Far West. The market is expected to see three more projects deliver within the first half of 2015, for over 300,000 sq. ft.

SAN ANTONIO OFFICE








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SAN ANTONIO OFFICE

CONTACTS

Lynn CirilloResearch Operations [email protected]


San Antonio OfficeMarketView

CBRE Global Research and Consulting Q3 2014

The San Antonio office market had another positive quarter posting positive 33,490 sq. ft. of net absorption and a vacancy rate of 16.6%. As the office market has shown its strength over the year developers have continued to bring new product out of the ground. While most of the new construction has broken ground in the suburban markets, it is possible the downtown area could see new office construction as well.

Over the summer, the City of San Antonio received a proposal from Frost Bank and Weston Urban LLC outlining plans, with several moving parts to it, for a new Class A office tower in downtown San Antonio. The proposal calls for a 400,000-sq.-ft. office tower to be built near the location of the current Frost Bank headquarters on Houston Street. Frost Bank would relocate its operations to the new building and would then sell its 338,000-sq.-ft. office building it currently occupies, along with a parking garage, to the city. This transaction would give San Antonio the opportunity to consolidate several of its offices into one location downtown. Also in the proposal, developer Urban Weston is looking to obtain several downtown buildings with plans for residential development. While this new development would give Frost Bank brand new office space, it could also bring a fresh new block of space to the Alamo City office market.

If delivered, Frost Bank would only occupy 250,000 sq. ft. out of the 400,000 sq. ft. of new office space.

This would give the CBD 150,000 sq. ft. of much needed new space it desperately needs and would help in the efforts to bring companies to the city center.

While the possibility of new construction downtown continues, more space is breaking ground in the suburban markets. Local office developer, R.L. Worth & Associates, began speculative construction on Heritage Oaks III located in the North Central submarket. This Class A project will bring over 100,000 sq. ft. of space to the local market over four stories. The same developer broke ground on another office building down the road known as RidgeWood Plaza. Also over four stories, this high end Class A development will span 147,000 sq. ft., and already has its first tenant lined up. EOG Resources will occupy 36,750 sq. ft., taking an entire floor.

The San Antonio construction scene is definitely in a better place than it was a year ago, and certainly better than it has been in several years. In Q3 2014 there was a total of 928,395 sq. ft. of new office product under construction, and more is expected to break ground. According to a report by McGraw Hill Construction, the San Antonio metro area was amongst the top 10 construction markets in the nation. The positive turn the market has taken in terms of construction can be attributed to Alamo City having one of the best performing economies in the country.

Figure 1: Quick Stats

Q3 2014 Q-o-Q Y-o-Y

Vacancy 16.6%

Asking Rates, FSG $20.11 per SF

Net Absorption 33,490 SF

Under Construction 928,395 SF

Delivered Construction 40,065 SF

Hot Topics

The office market ended Q3 2014 with 33,490 sq. ft. of net absorption, bringing total vacancy down slightly to 16.6%. Construction is currently at it’s highest level in several years with over 900,000 sq. ft. of new office product currently under way. It is possible the CBD may even see new construction of its own in the future with a new office tower proposed to city officials.

• San Antonio was named one of the best office construction markets in a report put out by McGraw Hill Construction.

• Forbes ranks San Antonio one of the best places to do business in 2014. The Alamo City was ranked number 16.

• San Antonio has once again received a AAA general bond obligation rating by Standard & Poor’s, Fitch and Moody’s.

• San Antonio is considered one of America’s Coolest Cities in 2014. The Alamo City was ranked number 15 by Forbes magazine.

• The Alamo city has over 900,000 sq. ft. of new office product under construction, an amount San Antonio has not experienced since 2009.


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CONSTRUCTION AT IT’S HIGHEST LEVEL IN YEARS.



© 2014, CBRE, Inc.

AVAILABILITY20.4%

ASKING RATE$20.11 per sq. ft.

UNEMPLOYMENT4.7%

OCCUPANCY83.4%

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CBD 5,100,035 1,178,802 23.1% 21,225 21,000 $19.76

North Central 8,018,835 1,015,921 12.7% 30,874 19,065 68,000 $21.27

Far North Central 2,458,355 238,261 9.7% 7,259 364,000 $22.51

Northeast 1,924,652 278,674 14.5% (14,095) $18.91

Northwest 8,452,652 1,630,192 19.3% (9,091) 335,895 $19.52

Far West 384,110 31,600 8.2% 0 160,500 $0.00

South 473,871 72,516 15.3% (2,682) $15.75

Totals 26,812,510 4,445,966 16.6% 33,490 40,065 928,395 $20.11

Source: CBRE Research, Q3 2014.The San Antonio office market saw positive 33,490 sq. ft. of positive net absorp-tion for Q3 2014, with a slight decrease in overall vacancy to 16.6%. While the market did experience its fair share of occupancies over the quarter, it only partially offset the few sizable blocks that came back onto the market. The largest vacancies experienced in Q3 2014 came out of University Business Park Center D by Harland Clarke (42,262 sq. ft.), Bromley Communications (43,000 sq. ft.) at 401 East Houston Street, and a vacancy by Pape Dawson (31,294 sq. ft.) into their own build to suit. With the large amount of new development, both speculative and build to suit, the market may experience more sizable move outs like these in Q4 2014, but much of this will likely be leveled out by tenants absorbing new space.

Notable Deals from Q3 2014 include: • EOG Resources signed a lease for 36,750 sq. ft. making them the first on the

tenant roster at RidgeWood Plaza.

• Bromley Communications will go into 14,658 sq. ft. at IBC Centre I.

• HealthSmart Holdings signed a lease for 12,885 sq. ft. at Ridgwood Business Cener I.

• The Texas Commission for the Blind (DARS) will occupy 11,582 sq. ft. at the Woodcock Building.

• At Bank of America Plaza Insight Global signed a lease for 7,456 sq. ft.Source: CBRE Research, Q3 2014.


Figure 4: Net Absorption and Vacancy


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UNEMPLOYMENTThe San Antonio-New Braunfels seasonally adjusted unemployment rate

remained flat between June and July and decreased 130 basis points over the

year to 4.7%. Metro area job growth increased 2.1% over the year adding

19,300 jobs and increased slightly over the month adding 1,700 jobs. The

Government sector is the only industry that lost jobs over the year the with a

less than 1% decrease. Job sectors that saw largest increases over the year

included Leisure and Hospitality, Education and Health Services, Professional

and Business Services, and Wholesale Trade. Like the Alamo City, the Texas

adjusted unemployment rate also remained flat over the month, but decreased

over the year to 5.1%, while the national average fared a bit higher at 6.2%.

OFFICE RENTSFull Service Gross (FSG) asking rates for available office product had a slight

increase in Q3 2014, bumping up to $20.11 per sq. ft. The highest overall

FSG asking rates were found in the North Central and Far North Central

submarkets at $21.27 and $22.51 per sq. ft., respectively. Rates rose over all

office classes with Class A and B rates increasing to $20.57 and $19.88 per

sq. ft. NNN asking rates for available space increased $0.12 over the quarter

to $15.67 per sq. ft., with the highest rates being reported in the Far North

Central submarket at $17.06 per sq. ft.

OFFICE PRODUCTConstruction picked up over the quarter with a few new projects break-

ing ground. Developer R.L. Worth & Associates broke ground on its newest

addition to master planned office development RidgeWood Park. The new

147,000-sq.-ft. Class A office building, located in the Far North Central

submarket, will be known as RidgeWood Plaza and has already inked its

first tenant. EOG Resources will occupy 36,750 sq. ft. taking an entire floor

of the new building. Also within RidgeWood Park construction continues on

a 58,000-sq.-ft. office facility for Avnet Inc. Construction on this two story

building is set to be complete by the years end. On the Far West side of town

Corporate Office Properties Trust (COPT), an REIT whose focus is on develop-

ing and owning properties in markets near defense installations, is developing

a 160,500-sq.-ft. office building at its Sentry Gateway Office Park. COPT has

already secured a lease with a U.S. Government tenant. There is currently a

total of 928,395 sq. ft. of new office development under construction with

another 348,700 sq. ft. set to break ground by the fourth quarter and on into

2015.

Figure 6: Unemployment

Figure 7: Gross Annual Average Asking Rates, Per Sq. Ft.

Figure 8: Construction Sq. Ft.



Source: Bureau of Labor Statistics, June 2014.

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GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Additional U.S. research produced by Global Research and Consulting can be found at www.cbre.us/research.

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.

Lynn CirilloResearch Operations ManagerCBRE Americas Research2800 Post Oak, Suite 2300Houston, TX 77056e: [email protected]

Veronica GonzalesResearch CoordinatorCBRE San Antonio Research200 Concord Plaza, Ste 800San Antonio, TX 78216t: +1 210 253 6019e: [email protected]

CONTACTSFor more information about this San Antonio Industrial MarketView, please contact:

TEXAS RESEARCH

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San Antonio OfficeMarketView

CBRE Global Research and Consulting Q2 2014

The San Antonio office market has already begun to outpace 2013 with another quarter of positive net absorption. Net absorption for Q2 2014 was 276,155 sq. ft., bringing total absorption for the first half of the year to 629,382 sq. ft. Vacancy in Q2 2014 dropped down to 16.8%, an 80-point basis point (bps) decline from Q1 2014. The office market picked up where it left off in the first quarter, and much of the market’s strength right now can be attributed to the local economy.

In April, the San Antonio-New Braunfels unemployment rate posted at 4.8%. The Alamo City hasn’t seen an unemployment dip below 5% since June of 2008, when unemployment was reported at 4.9%. This six-year low is evidence of how strong the economy has become, and is expected to continue to perform. In March, San Antonio made history by rising above the one million mark of people actively employed within the metro area. As companies continue to look for opportunities to establish and expand their presence in San Antonio, the commercial real estate market is more than likely to continue benefiting positively from it.

Computer hardware and software developer Oracle recently announced plans to bring 200 jobs to the San Antonio area over the next two

years. According to a newsletter put out by the San Antonio Economic Development Foundation (SAEDF), 360SA eNews Report, the company will bring finance and contractual support jobs to the workforce. According to the report County Judge Nelson Wolff says “Oracle’s interest in locating operations here is proof that our economy is strong and our business climate is attractive to such global companies. This also affirms that we are building a diverse multi-industry economy where our residents can find meaningful career opportunities.” Oracle has already signed a 35,364-sq.-ft. lease at the Spectrum Building, where it will offer jobs with salaries starting at $70,000.

The booming economy has certainly had a positive impact on the San Antonio office market, and shows no signs of slowing down. As a result, deal activity has picked up and developers have begun to answer the need for new office product with new construction throughout the city. According to the SAEDF, there are currently 116 companies considering the Alamo City for location and expansion opportunities. It is hopeful that the office market will maintain its momentum into the second half of the year.

Figure 1: Quick Stats

Q2 2014 Q-o-Q Y-o-Y

Vacancy 16.8%

Asking Rates, FSG $20.00

Net Absorption 276,155 sq. ft.

Under Construction 443,960 sq. ft.

Delivered Construction 0 1 1

Hot Topics

The office market ended Q2 2014 with 276,155 sq. ft. of net absorption, bringing total vacancy down to 16.8%. Construction starts picked up with two new projects breaking ground, bringing new office product currently under development to 443,960 sq. ft. As the economy continues to improve, so does the commercial real estate market for the Alamo City.

• The unemployment rate for the SanAntonio-New Braunfels metro areadropped to 4.8%, the lowest rate in nearlysix years for the Alamo City.

• San Antonio was amongst the top 25U.S. Job Markets in 2014, according toZipRecruiter.com

• San Antonio ranked fourth in populationgrowth according to the U.S. CensusBureau, adding 25,378 people duringthe year ending July 1, 2013.

• San Antonio received a ‘Grade A’ on the2014 Small Business Friendliness Surveygiven by Thumbtack.com in partnershipwith the Kauffman Foundation.

• Texas ranks eighth nationwide for growthin gross domestic product in 2013according to the U.S. Bureau of EconomicAnalysis.

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Figure 2: Asking Rent Per Sq. Ft. and Vacancy Rate

SAN ANTONIO OFFICE MARKET OUTPERFORMING 2013.



© 2014, CBRE, Inc.

AVAILABILITY20.3%

ASKING RATE$20.00 per Sq. Ft.

UNEMPLOYMENT4.8% Y-o-Y

OCCUPANCY83.2%

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CBD 5,079,035 1,188,663 23.4% 61,567 21,000 $19.41

North Central 10,458,125 1,296,818 12.4% 144,637 87,065 $21.36

Northeast 1,924,652 264,579 13.7% (2,410) $18.94

Northwest 8,838,952 1,678,658 19.0% 97,406 335,895 $19.48

South 473,871 69,834 14.7% (25,045) $20.14

Totals 26,774,635 4,498,552 16.8% 276,155 443,960 $20.00


Net absorption for Q2 2014 was 276,155 sq. ft. with an overall vacancy rate of 16.8%. Activity experienced in Q2 2014 has already put the office market above year-to-date net absorption for 2013, totaling 629,382 sq. ft. thus far. Every Class had positive net absorption with the Class A sector having the most, at 120,171 sq. ft., pushing Class A vacancy down to 8.9%. The larger than usual net absorption San Antonio recorded in the first half of the year can be at-tributed to larger deal sizes. With the economy on its side, San Antonio is starting to attract the eye of larger office users of all types. As new Class A office product offers the size requirements needed by large tenants, it is possible San Antonio will see an increased amount of larger deals in the future.

Notable Deals from Q2 2014 include: • At Promenade One and Two at Éilan, several tenants signed leases totaling

68,799 sq. ft., bringing both buildings to 100% occupancy.

• At the Trinity Building, High Intensity Drug Trafficking Areas (HIDTA) signed a lease totaling roughly 54,486 sq. ft.

• Oracle will open their operations at the Spectrum Building where they signed a lease for 35,364 sq. ft.

• Nielsen has expanded by 16,113 sq. ft. at the Brownwood Building

• Westwood Professional Services (5,000 sq. ft.) and EOG (10,000 sq. ft.) wereadded to the tenant roster at the new office development Ridgewood Business Center I.



Figure 4: Net Absorption and Vacancy

Figure 5: Historical Vacancy

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OFFICE SECOND QUARTERMARKET STATISTICS

© 2014, CBRE, Inc.

UNEMPLOYMENTThe San Antonio-New Braunfels unemployment rate fell to a six-year low of

4.8% in April. In the previous month, for the first time in history, the metro area

reached over a million people employed. Between March and April there were

2,200 non-agricultural jobs added to the Alamo City, and 18,800 added over

the year. Job sectors that experienced gains over the year included Leisure and

Hospitality (4,890 jobs), Professional and Business Services (3,640 jobs), and

Retail Trade (3,070 jobs). Financial Activities and Manufacturing job sectors

experienced job losses over the year giving up a total of 100 jobs. The Texas

unemployment rate dropped down to 5.2% in April adding 64,100 jobs, mak-

ing it the leader in job gains according to an article in the San Antonio Express

News. The national jobless rate also took a dip in the month of April posting

at 6.3%.

OFFICE RENTSFull service gross asking rates, for available office space, increased by $0.26

per sq. ft. to $20.00 per sq. ft. in Q2 2014. Nearly every submarket saw a

jump in asking rates over the quarter with the exception of the South submar-

ket, which remained flat at $20.14 per sq. ft. and the North Central submar-

ket, which decreased to $21.36 per sq. ft. Though the North Central sector

saw a drop in Q2 2014, it continues to have the highest average asking rate

city-wide. Class A and B asking rates remained healthy at $24.07 and $19.73

per sq. ft., respectively. NNN asking rates for available office space increased

city-wide in Q2 2014 to $15.55 per sq. ft.

OFFICE PRODUCTConstruction officially broke ground over the quarter on Lockhill Crossing. The

new Class A office building will be located in the city’s Northwest submarket,

along Loop 1604. The building will be 126,626 sq. ft. over five floors. Ac-

cording to an article in the San Antonio Business Journal, Lockhill Crossing is

being built on a speculative basis and is already 16% leased to two tenants.

The developer of the project, Stream Realty Partners, recently announced plans

for another speculative office project known as One51 Office Centre, which

will be located on the city’s Far West side. The new office building will be up

to 100,000 sq. ft. and is set to break ground sometime in the third quarter.

WestRidge at La Cantera already has a tenant lined up, bringing this new

office development to full occupancy. Upon completion Harland Clarke will

move its headquarters to the 129,016-sq.-ft. Class A building located in the

Northwest submarket. Developers plan to break ground on a second building

at WestRidge in the fourth quarter.

Figure 6: Unemployment

Figure 7: Gross Annual Average Asking Rates, Per Sq. Ft.




Source: Bureau of Labor Statistics, June 2014.

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© 2014, CBRE, Inc.

FOLLOW CBRE

GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Additional U.S. research produced by Global Research and Consulting can be found at www.cbre.us/research.

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.

Lynn CirilloResearch Operations ManagerCBRE Americas Research2800 Post Oak, Suite 2300Houston, TX 77056e: [email protected]

Veronica GonzalesResearch CoordinatorCBRE San Antonio Research200 Concord Plaza, Ste 800San Antonio, TX 78216t: +1 210 253 6019e: [email protected]

CONTACTSFor more information about this San Antonio Industrial MarketView, please contact:

TEXAS RESEARCH

http://www.twitter.com/cbre

http://www.pinterest.com/cbregroup/pins/

http://www.linkedin.com/company/cbre

https://plus.google.com/110640413332542089478

http://www.facebook.com/pages/CBRE/85277065893

http://www.youtube.com/user/CBREgroup

http://instagram.com/cbre

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