San Antonio Industrial Market Ends 2024 Strong with Rising Leasing Activity and Record-High Rents

EXECUTIVE SUMMARY

Q4 in Review

San Antonio’s industrial market demonstrated resilience in Q4 2024, with healthy net absorption and steady leasing activity despite a year-over-year rise in vacancy rates. Net absorption surged to 816,416 sq. ft. in Q4, a substantial improvement from the 16,104 sq. ft. absorbed in the previous quarter. While the Flex segment faced challenges with negative net absorption for the year, Manufacturing and Warehouse/Distribution spaces contributed positively, driven by significant move-ins such as International Paper, The Reynolds Company, and Bob Mills Furniture. Quarterly leasing activity increased 4% year-over-year, reaching 1.7 million sq. ft., with Warehouse/Distribution spaces leading at 89% of total leasing velocity.

Construction activity showed a dramatic slowdown in deliveries, with only 196,629 sq. ft. completed in Q4—a 94% decline from the same period last year. However, the construction pipeline grew moderately, with 4.6 million sq. ft. underway, 50% of which is pre-leased. Vacancy rates held steady at 8.6% quarter-over-quarter but rose 210 basis points year-over-year, driven by elevated vacancy in Warehouse/Distribution spaces.

Despite mixed indicators, the market’s strong leasing activity, ongoing construction, and sustained investment interest underline the industrial sector’s critical role in San Antonio’s economic landscape.

San Antonio Economic Update 

The San Antonio unemployment rate ticked up to 3.9% in November. The unemployment rates in Texas and the U.S. both rose to 4.2%.  The San Antonio Business-Cycle Index, a gauge of economic conditions in the metro area, increased an annualized 1.7% in November.

San Antonio payrolls rose in November, growing an annualized 2.2% (2,200 jobs). From August to November, payrolls grew 1.3% (3,800 jobs), with gains led by leisure and hospitality (4.8%, or 1,700 jobs), education and health services (3.2%, or 1,400 jobs), and professional and business services (2.2%, or 900 jobs). Government, manufacturing and mining sectors lost jobs.

MARKET OVERVIEW

Net Absorption Healthy, Trending Upward in the Fourth Quarter

Net absorption—move-ins minus move-outs—was a healthy 816,416 sq. ft., up from the 16,104 sq. ft. in absorbed in Q3 2024.  For the year, Flex has struggled with negative net absorption (165,382 sq. ft.), while Manufacturing and Warehouse/Distribution have been positive with 332,002 sq. ft. and 934,482 sq. ft., respectively.  Recent notable move-ins include International Paper taking 138,495 sq. ft. at Centerpoint Logistics Building 5, The Reynolds Company taking 132,000 sq. ft. at 6413 Tri County, Bob Mills Furniture taking 114,369 sq. ft. at 17975 I-35 and Mako Freight subleasing 112,205 sq. ft. Cornerstone Logistics Crossing.

Construction Deliveries Slowed Dramatically Over Past Year, While Pipeline Increases Moderately

Construction deliveries were low for the quarter, with 196,629 sq. ft. completed, this is down 94% from the 3.3 million sq. ft. completed one year ago.  The under construction pipeline has been trending is up moderately over the past few quarters, with 4.6 million sq. ft. underway, this is up 20% from last year’s level.

Vacancy Rate Unchanged at 8.6%

The overall vacancy rate in San Antonio’s industrial market is 8.6%. Quarter-over-quarter, the vacancy rate was unchanged but increased year-over-year 210 basis points from 7.5%. Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 6.7%, 3.2%, and 10.1%, respectively. With 50% of construction pipeline pre-leased, the total vacancy rate is expected to increase slightly over the next few quarters.

Leasing Up 4% Compared to One Year Ago

Quarterly leasing velocity—comprised of new leases and renewals—stood at 1.7 million sq. ft.—up 4% from 1.6 million sq. ft. in Q4 2023. The Warehouse/Distribution sector accounted for the majority of leasing activity (89%), with limited activity for Flex and Manufacturing properties (10% and 1%, respectively). Recently signed leases include Omega Air Refueling Services signing a 147,620 sq. ft. lease at the Corporate Drive Industrial Complex, MacDiscount signing a 129,521 sq. ft. lease at the Mid City Industrial Park and Reece signing a 119,600 sq. ft. lease at the Interpark Logistics Center.

Investment Sales Trends 

CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q4 2024 at $146 million. Over the past year, 138 deals were completed in San Antonio’s industrial market with an average transaction price of $112 and an average cap rate of 8.0%.  Recent notable sales include Evergen Equity purchasing Two Winnco Center.  The 313,000 sq. ft. distribution facility is 100% leased to H-E-B and Flour.  Also, Exeter purchased Selma Industrial Park Building II, a 307,250 sq. ft. warehouse leased by Berlin Packaging, Westport Axle and Made in Cookware.

Record-High Asking Rents Move Slightly Higher

The average monthly rental rate (NNN) for San Antonio’s industrial market increased slightly to $8.61 per sq. ft. –a record-high for the metro’s industrial sector—but only up 1.8% over the past quarter. The average monthly rate for Flex Space stood at $12.77 per sq. ft., while Manufacturing and Warehouse/Distribution Space rates were at $7.90 per sq. ft. and $7.96 per sq. ft., respectively.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]