Posted on February 5th, 2013
Filed Under General
From the San Antonio Business Journal:
The downtown office market over the past half decade has been plagued by the exodus of a major office user, AT&T Inc., and a trend toward suburban flight.
Both trends, however, appear to be coming to an end, says Larry Mendez, senior vice president of the local office of real-estate brokerage firm Transwestern.
Some of the proof, he says, lies in a slate of leases that were inked over the course of 2012 at Bank of America Plaza — one of a handful of high-profile office properties in the city’s central business district.
All told, new leases, expansions and renewals resulted in 90,399 square feet worth of leasing activity over the past year at the property, which is located at 300 Convent. Of that, leases involving some 35,000 square feet space were signed in the last month of 2012, and most of those deals are for new corporate arrivals to the Alamo City, Mendez adds.
The deals at Bank of America Plaza mark one of the latest coups for downtown, he adds. “We are starting to get critical mass downtown,” Mendez says. “I feel very bullish about the opportunities for downtown.”
Mendez and fellow Transwestern broker Brad Kaufman represented the landlord, Talcott II Alamo Ltd., in the lease transactions at the Bank of America Plaza.
The Bank of America Plaza deals mark the latest win for Transwestern, which also helped to backfill space at another prominent downtown building, IBC Centre — which spans a total of 370,000 square feet over two buildings at 130 E. Travis and 175 E. Houston.
Over the first two weeks of September 2011, Transwestern helped to negotiate sizable leases with two tenants, HVHC Inc. and Argo Group US Inc., at IBC Centre. Those two tenants occupy a total of 190,006 square feet of space — helping to backfill the roughly 300,000 square feet that AT&T vacated at IBC Centre when it moved its headquarters to Dallas in 2008.
Mendez and Transwestern broker Scott Wolff represented IBC Centre’s owner, IBC Bank, in the HVHC and Argo leases.
Much of the credit, says Mendez and others, goes to the city of San Antonio and its efforts to make downtown a more attractive option for office users.
The moves of both Argo and HVHC, for example, were incentivized. The former’s agreement with the city calls for Argo to receive free parking for up to 300 spaces at the St. Mary’s garage downtown for 10 years — a deal valued at approximately $2.85 million.
Meanwhile, HVHC is receiving more than $4 million in incentives — including a cash grant of some $1 million, payable over the next two years, and approximately $2.9 million in parking subsidies for the St. Mary’s garage. Both Argo and HVHC relocated downtown from leased spaces on the city’s North Central Side.
This “incentivized momentum” for the downtown office market can serve as the catalyst for bringing other office users to the center city — without incentives, says Kim Gatley, senior vice president and director of research for local real estate firm NAI REOC San Antonio.
“We have to start the ball somewhere,” she says. “Downtown is a challenged market. It will take a lot to get it moving.”
The fourth-quarter 2012 office statistics from NAI REOC highlight some of the challenges the downtown submarket still faces. Over the 12 months ended Dec. 31, 2012, the center-city submarket posted negative absorption (space returned to the market) of some 333,000 square feet of space, NAI REOC reports.
By comparison, over that same time period, the suburban office market posted positive absorption (a net gain in leased space) of more than 496,000 square feet.
The vacancy rate for the central business district now sits at above 30 percent. By comparison, the suburban office market reported a vacancy rate of 17.3 percent as of fourth-quarter 2012, per the latest NAI REOC analysis.
“It’s going to take a lot to reverse this trend (of suburban flight)” says Gatley. The relocation of companies like HVHC and Argo are like a game of checkers that may be good for downtown, but such horizontal moves do little to shore up the city’s office market as a whole, she adds.
Still, even incentivized horizontal moves are a start, say Gatley and others. “There are tremendous things happening,” Mendez adds. “The snowball is starting to roll down the hill. We have tenants that desire and truly want to be in downtown San Antonio,”
Not all the tenants moving into downtown offices are from the city’s outlying areas, however. OCI Solar Power, which is relocating its headquarters from Atlanta to the Alamo City, inked a lease for 15,545 square feet at Bank of America Plaza this past December for its corporate offices, Mendez says.
Even the local companies that have relocated to downtown are championing the the central business district as a place to do business. “To be a part of Mayor (Julían) Castro’s downtown revitalization activities … has been a winning combination for all of us,” says David Holmberg, CEO of HVHC Inc., one of the country’s largest providers of managed vision-care and services. HVHC is the parent company of several optical retail brands, including Eyemasters.
Holmberg continues: “Our companies and associates … are committed to doing their part to help continue to transform downtown San Antonio into a great place to live, work and do business.”