It's Time To Pay Attention To San Antonio
For years, San Antonio has sat back and let its flashier sister cities hog all the attention (off the basketball court, at least). Now that the market cycles are turning investors off other major Texas metros like Houston, they're starting to give the Alamo City a second look—and they like what they see. Hear more about San Antonio's market from our panel of experts at Bisnow's State of the Market event on Sept. 29.
San Antonio has quietly established itself as an attractive office market. The metro’s financial services industry employs approximately 86,000 workers, growing nearly 30% since the recession. USAA’s move into Downtown last year started a resurgence of companies choosing to locate in the core of the city. The success of Geekdom Downtown has driven the creation of co-working space in other areas of the metro, offering telecommuters and freelance employees the opportunity to work in an office environment. As businesses continue to expand in San Antonio this year, vacancy will retreat to its lowest point since 2008.
The office market experienced increased average asking rents and relatively flat vacancy with an inventory that added at least 850k SF since Q1 '15. Quarterly leasing activity was a moderate 240k SF while leasing activity for the prior quarter was revised upwards to 360k SF.
San Antonio's industrial market also remains strong with stable vacancy and modest rent growth. Since Q1 '15, more than 1M SF of speculative, modern warehouse space was delivered to a market that reported 90% occupancy for over three years. The industrial market has benefited from a number of large industrial projects; Amazon's 855k SF fulfillment center in San Marcos, O'Reilly Auto Parts' 380k SF facility in Selma and Conn's 300k SF facility in Selma.
Multifamily values continue to rise as buyers aggressively bid for limited listings. With interest rates remaining at historic lows, relatively inexpensive liquidity has prompted investors to rehab their properties to market at higher rents, raising NOIs and property values. New construction is targeting empty nesters who want to live in areas close to Downtown entertainment venues (GO Spurs GO!). Young professionals drawn to the area's rapidly growing cybernetics industry are also choosing to live in high-energy areas.
They say retail got its name because it always comes at the tail end of development. Retail vacancy will reach a new low in San Antonio in the coming months as tenant demand remains heightened and construction remains limited. Steady hiring is attracting thousands of individuals to the metro each year, prompting the expansion of several necessities-based retailers throughout the region. Walmart, H-E-B, Natural Grocers and CVS will all add new locations this year.
On the healthcare side, medical office lease space has net absorbed 31k SF so far this year. Although still high, the citywide vacancy rate within medical-only office buildings improved a little to 20.1%. The healthcare market isn't as encouraging as other sectors, but its relative stability due to restrained space for spec development is a positive sign.
The biggest cause for concern may be the hospitality sector. Austin continues to outpace San Antonio in air travel. Late last year—for the first time ever—Austin's hotel sector was more robust than San Antonio's. San Antonio leaders want to see more airlines provide nonstop service to and from San Antonio. Austin does, too. “We have to create a much more competitive airport,” Arthur Coulombe told the San Antonio Business Journal. Arthur serves as chair of San Antonio's Air Service Development Task Force and also general manager of the JW Marriott San Antonio Hill Country Resort.
New drivers have been emerging, like biosciences, spurred by UTSA's Ricardo Romo. San Antonio Mayor Ivy Taylor has stressed maintaining the economic momentum Ricardo has built up. The mayor pointed to the $200M UTSA has raised through a new capital campaign under Ricardo's leadership and the fact that UTSA now contributes more than $1B annually to the local economy. Although Ricardo is retiring next August after 18 years at UTSA, he's attracted research dollars and bioscience attention to San Antonio.
All in all, San Antonio is healthy and poised for even more growth. But don't take our word for it! Join us at Bisnow's State of the Market event on Sept. 29 to hear from our panel of experts.
