San Antonio Poised to Lead US in Office Rent Growth

Remote work trends continue to pose challenges to office markets across the Texas Triangle, but the Alamo City may be leading the pack on the path to recovery.

San Antonio is expected to lead the nation in office rent growth over the next four years, with rates projected to increase by 1.5 percent annually because or resilient demand, the San Antonio Business Journal reported, citing CoStar.

While projections are down from San Antonio’s nearly 4 percent spike in office rents over the past 12 months, it’s still a win given the beleaguered state of the asset class, which has been grappling with high vacancies since the pandemic. Higher interest rates have depressed property values and compounded challenges since last year.

Continued rent growth is a silver lining for San Antonio, but that doesn’t necessarily mean it will outpace inflation, said CoStar Danny Khalil. Still, the projected growth is a sign that San Antonio’s office market is faring better than most U.S. cities.

“You’re approaching something functional, something resembling a normal market,” Khalil told the outlet.

San Antonio’s office vacancy rate stands at 11 percent, down from the national average of 14 percent. That’s also lower than in Dallas, Houston and Austin, where vacancies were at 26 percent, 21 percent and 19 percent in the first quarter, respectively.

Akin to most major cities, downtown San Antonio is feeling pain, with vacancies hovering near 20 percent in the CBD, according to Partners Real Estate. Some submarkets are thriving, though. For instance, the Broadway corridor near downtown, featuring prominent buildings such as Jefferson Bank, Credit Human, the Soto, the Oxbow, and the Light Building, boasts 93 percent occupancy. Port San Antonio is nearly maxed out at 98 percent. Areas like the Pearl district and River North are also having success attracting tenants.

Those submarkets are performing well due to the concentration of Class A office properties, which have become significantly more attractive to tenants since the pandemic ignited the remote-work era.

Despite robust demand in certain areas, the office development pipeline is expected to remain dry amid high borrowing costs and tight lending standards, said Dan Geddes, San Antonio market president with Frost Bank.

—Quinn Donoghue