Raub Report: Commercial Real Estate Sector Performance

Let’s take a whip around the various commercial real estate sectors in San Antonio and see how it is going.

Apartments occupancies just got back above 90% after a dip from 93% down to 89%. Apartments are given to a two year over-building cycle, so this is to be expected. However, while concessions are still hindering the performance of properties, yet rents keep on ‘arisin’ anyway.  Currently, there are about 15 complexes with 4,133 units under construction; 40 complexes are proposed for future development. Capitalization rates are flat, especially now that interest rates are on pause from the Federal Reserve.

Offices are doing well, with about 1.4-million square feet under construction, with about 65% pre-leased.   Of course, the majority of new construction is downtown, with the San Antonio Urban/Centro Renaissance in full bloom.  The new energy in the urban core will last for decades to come as living in the center city on the River Walk is now very fashionable and  these trends tend to be very long.  The last time we had a surge in the downtown was in the 1970’s and early 1980’s, then nothing much happened for 30 years.  Now we are on the surge again with The Pearl having been the catalyst.  The eventual build-out of the downtown UTSA campus on the west side of Downtown and Texas Research Foundation’s Velocity Texas on the east side will be the next big catalysts and they have barely begun.

Retail is doing okay with low vacancy at 4.5% and 4% rent growth. Most new construction is focused on new residential growth areas, but has actually slowed over the past year.  While we won’t see any new malls developed, the exception is the retail, office and residential mixed use complex of La Cantera, Eilan and The Rim which is continuing to build out.  USAA is starting a new retail center at IH-10 and La Cantera Parkway; then, we can expect new activity at Eilan and The Rim.

Industrial chugs along with new construction and strong occupancy.  As industrial is very confined to areas already zoned for industrial use and because it must be along a major expressway, new construction is focused along IH-10 East and south Loop 410. The I-35 Corridor is already crowded.

While San Antonio is doing well, Austin is off the charts.  U.S. News just named it the Number 1 City to live in.  Immigration from California is huge, with Google, Apple, and Amazon recently announcing major office leases and construction. I mentioned that we are under construction with 1.4m square feet of new office space and we have an 11.5% vacancy factor.  Austin is building 3x that at 4.8m, with higher rents and a low 9.3% vacancy.  Housing costs in California are so high it is driving companies to relocate so employees can afford to work for them.  One developer told me this week that a standard home lot in a California subdivision is going for $950,000!  That is about 15x the cost in San Antonio.  We will build about 14,000 new homes this year, while Austin is projected at 29,000, more than twice as many, and houses in Austin are 20% more expensive than San Antonio.  Fun Fact: Fredericksburg is the second most visited wine country to Napa Valley. Can you see Fredericksburg as far west Austin?  In the Sixties it was “California Dreaming”?  Now Californians are singing “Texas Dreaming.”

So, San Antonio will benefit from not only our own dynamism, but also the spill-over effect from the exodus from California to Central Texas.