The San Antonio medical office market showed signs of softening in Q1 2026, with vacancy rising slightly to 12.2% and negative net absorption of 28,529 SF, indicating a pause in tenant demand following several quarters of relative stability. Asking rents reached $29.09/SF, but growth slowed to just 0.6% year-over-year, continuing a clear deceleration trend from prior years. Construction activity significantly declined, with only 82,681 SF underway, reflecting a sharp pullback in new development. On the investment side, activity remained steady with 16 sales, while cap rates compressed slightly to 7.0%, signaling continued but cautious investor interest. Overall, the market is transitioning into a more balanced phase, with moderating demand and a reduced supply pipeline supporting longer-term stability.

 

Key Findings

• Softening Leasing Activity: Leasing momentum slowed during the quarter, with demand pulling back after a period of relative stability, resulting in weaker absorption and a more cautious tenant outlook.
• Slowing Rent Growth: Rent growth continued to decelerate, reflecting a shift toward a more competitive leasing environment where landlords have less pricing power than in prior years.
• Reduced Development Pipeline: Development activity has slowed significantly, as developers scale back new projects in response to moderating demand, leading to a more disciplined and constrained supply pipeline moving forward.

 

San Antonio Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 3.9%
• Current Population: 2,800,967
• Households: 1,025,237
• Median Household Income: $81,315

 

Rents

Asking rents in San Antonio’s medical office market reached $29.09/SF in Q1 2026, but growth has slowed considerably compared to prior years. Annual growth has steadily declined from peaks near 2.0% in 2022 to just 0.6% today, reflecting easing demand and increased tenant leverage. While rents remain near peak levels, quarterly gains have become more limited, signaling a shift away from the stronger upward momentum seen earlier in the cycle. This moderation suggests a more competitive leasing environment, though pricing remains relatively stable overall.

 

Market Asking Rent Per SF

Source: CoStar Group, Inc.

 

Vacancy

Vacancy increased slightly to 12.2% in Q1 2026, up from 11.9% in Q4 2025. Over the past year, rates have remained relatively stable, generally hovering in the low-12% range after improving from peaks above 13% in 2023. The recent increase, coupled with negative absorption, suggests demand has softened modestly, though overall market conditions remain balanced. Vacancy stability over time continues to support predictable occupancy levels, even as leasing activity slows.

 

Vacancy Rate

Source: CoStar Group, Inc.

 

Construction

Development activity declined sharply in Q1 2026, with 82,681 SF under construction, down significantly from over 290,000 SF one year ago. This marks a continuation of a broader downward trend as developers scale back in response to moderating demand. Deliveries totaled 40,000 SF during the quarter, outpacing absorption and contributing to the slight increase in vacancy. Compared to prior cycles with substantially higher development volumes, current activity reflects a more disciplined pipeline that should help limit future supply pressure.

 

SF Under Construction

Source: CoStar Group, Inc.

 

 Sales

Investment activity in San Antonio’s medical office market remained steady in Q1 2026, with 16 transactions recorded during the quarter. Cap rates compressed slightly to 7.0%, down from 7.5% in Q4 2025. Yields have generally fluctuated within the 6%–8% range over the past several years, indicating a relatively stable investment environment.

 

Investor activity continues to be driven largely by private buyers targeting healthcare assets for their defensive characteristics, with a focus on well-leased, stable properties despite softer leasing fundamentals.

 

Cap Rate

Source: CoStar Group, Inc.

 

By the Numbers

Q1 2026 | Source: CoStar Group, Inc.

• # of Sales: 16
• Cap Rate: 7.0%
• Vacancy Rate: 12.2%
• Rent Growth (YOY): 0.6%
• Asking Rent Per SF: $29.09
• SF Under Construction: 82,681
• SF Delivered: 40,000
• SF Absorbed: (28,529)