San Antonio Industrial Market Net Absorption Turns Negative, Vacancy Rates Rise to Historic Highs

EXECUTIVE SUMMARY

Q1 in Review

San Antonio’s industrial market posted -168,153 sq. ft. of negative net absorption in Q1 2025 in stark contrast to the 816,416 sq. ft. posted in the previous quarter. New construction deliveries of over 2.5 million sq. ft. helped push the vacancy rate from 8.6% to 9.9%. Warehouse/ Distribution contributed the most to negative absorption, driven by 2.4 million sq. ft. of new deliveries. Fortunately, construction activity slowed by 13.3% over the quarter and was down 28.4% over the year, which should help with absorption in the near term. Leasing activity fell as well, dropping 62% over the quarter. The vacancy rate rose to near the historical high of 10% and currently sits at 9.9%. Warehouse/Distribution space vacancies are the highest at 11.7%.

San Antonio Economic Update 

The San Antonio unemployment rate decreased from 3.9% to 3.8% in February 2025. The unemployment rates in Texas and the U.S. both rose to 4.1%. The San Antonio Business-Cycle Index, a gauge of economic conditions in the metro area, increased an annualized 0.7% in November.

San Antonio payrolls rose in February, growing an annualized 0.3% (300 jobs). From November to February, payrolls grew 1.4% (4,300 jobs), with gains led by education and health services (6.7%, or 3,000 jobs), government (3.0%, or 1,400 jobs), and trade, transportation and utilities (0.9%, or 500 jobs). Manufacturing, leisure and hospitality, information, other services, financial activities, and federal government sectors lost jobs. Year over year, total nonfarm employment growth in San Antonio was 1.6 percent, faster than gains in Texas (1.4 percent) and the U.S. (1.2 percent).

MARKET OVERVIEW

Net Absorption Turns Negative in Q1 2025

Net absorption—move-ins minus move-outs—turned negative in Q1 2025 at -168,153 sq. ft., substantially down from the 816,416 sq. ft. of positive absorption recorded in Q1 2025.  Warehouse/distribution contributed the highest amount of negative absorption in Q1 2025, posting -285,133 sq. ft.  Flex properties posted 199,948 sq. ft. of positive absorption, while manufacturing was negative at -82,968 sq. ft. Recent notable move-ins include Home Depot taking 400,000 sq. ft. at 15720 Old Corpus Christi Rd, CyrusOne, Inc. taking 177,000 sq. ft. at 14719 Omicron Dr., and Bob Miller Bar-B-Q taking 335,000 sq. ft. at 5330 State Highway 151.

Deliveries Increased, While the Construction Pipeline Decreases

Construction deliveries were considerably higher in Q1 2025, with 2,582,233 sq. ft. completed, a 574% quarterly increase and 104% annual increase. The under-construction pipeline trended down by 13% from the previous quarter and now contains 3,955,233 sq. ft.

Vacancy Rate Up 130 Basis Points to 9.9%, Near the Historical High of 10% 

The overall vacancy rate in San Antonio’s industrial market is 9.9%, up from 8.6% in the previous quarter. Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 6.8%, 3.4%, and 11.7%, respectively. With 41% of the construction pipeline being pre-leased, the total vacancy rate is expected to increase slightly over the next few quarters.

Leasing Activity Significantly Down

Quarterly leasing velocity—comprised of new leases and renewals—stood at 684,476 sq. ft., down 57% from 1.6 million sq. ft. in Q1 2024.  The Warehouse/Distribution sector accounted for the majority of leasing activity (67%), with more subdued activity for Flex and Manufacturing properties (26% and 6%, respectively). Recently signed leases include Toyota Tsusho signing a 150,000 sq. ft. lease at Forest Commerce Center, Hill Country Outdoor Power signing an 11,400 sq. ft. lease at 4327 Centergate St, and Cimarron Energy signing a 10,500 sq. ft. lease at 102096 IH 37.

Investment Sales Trends 

CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q1 2025 at $211 million. Over the past year, 139 deals were completed in San Antonio’s industrial market with an average transaction price of $129 and an average cap rate of 7.2%.  Recent notable sales include LW San Antonio Realty, LLC’s purchase of a 47,547 sq. ft. Frito-Lay/PepsiCo leased industrial building located at 9502 SW Loop 410. The property traded for $347 per sq. ft. with a cap rate of 6.33%. The building was newly delivered in 2024, and Frito-Lay/PepsiCo signed a 10-year, triple-net lease. Also, B & D Holdings purchased the 163,288 sq. ft. 6251 Rittiman Rd. distribution warehouse for approximately $62.25 per sq. ft. The property was leased 100% at the time of sale.

Record-High Asking Rents Move Higher

San Antonio’s industrial market average monthly rental rate (NNN) increased 2.7% over the quarter from $8.61 per sq. ft. to $8.84 per sq. ft., a record-high for the metro’s industrial sector. The average monthly rate for Flex Space stood at $13.31 per sq. ft., while Manufacturing and Warehouse/ Distribution Space rates were at $7.26 per sq. ft. and $8.33 per sq. ft., respectively.

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