San Antonio’s industrial vacancy rate drops to 3.5% as leasing activity reaches record levels.

EXECUTIVE SUMMARY

Industrial market records continued growth
Q3 2022 marks the eighth consecutive quarter that demand for industrial space, represented by net absorption (1.3 million sq. ft.), outpaced supply (679,000 sq. ft.) in the San Antonio metro—a streak not seen since Q1 2014 or almost nine years. Leasing was also strong again, with the San Antonio area recording 2.1 million sq. ft of activity, comparable to last quarter at 2.0 million sq. ft., although down 36% from this time last year at 3.1 million sq. ft. With 7 million sq. ft. delivered so far in 2022, 8.1 million sq. ft. under construction, and another 6.8 million sq. ft. proposed through 2023, the demand for industrial real estate may continue to overtake supply.

San Antonio economy slowed down in August
The San Antonio unemployment rate increased in May to 4.0%. The metro’s unemployment rate is above the U.S. jobless figure of 3.6% but below the state rate of 4.2%. San Antonio payrolls expanded an annualized 2.1% (5,800 jobs) over the three months ending in May. Among the major sectors, mining led growth with an increase of 11.3% (162 jobs). It was followed by manufacturing, up 10.6% (1,340 jobs), and financial activities, up 7.6% (1,745 jobs). Sectors that posted declines were construction (-6.8%, or 1,035 jobs), trade, transportation and utilities (-1.0%, or 499 jobs) and professional and business services (-0.7%, or 255 jobs). With the increase in May employment, San Antonio has gained approximately 148,700 jobs since the lowest point of the pandemic in April 2020 and surpassed pre-pandemic employment.

MARKET OVERVIEW

Vacancy rate tightens to 3.5%
San Antonio’s industrial vacancy rate dropped 50 basis points quarter-over-quarter from 4.0% and decreased 200 basis points year-over-year from 5.5%. The vacancy rate for Class A properties is at 6.4%, dropping significantly from 14.3% In Q3 2021. Total inventory for Class A space represents 24.4 million sq. ft., up from 17.5 million sq. ft. as of this time last year—an impressive 40% increase. The drop in the overall vacancy rate is partly due to the record-breaking leasing activity in 2022 at 6.3 million sq. ft.—in addition to 2021’s 13.5 million sq. ft. 107 lease transactions, comprised of both new leases and renewals, were executed in Q3 2022. Some of the largest recent leases include Tesla moving into 439,809 sq. ft. at Becknell-Foster Ridge 2 in the South submarket; 133,875 sq. ft. leased at Port San Antonio; Berlin Packaging leasing 120,000 sq. ft. at Selma Industrial Park in Comal County; and 112,025 sq. ft. leased at Cornerstone Industrial Park in the Northeast submarket. In addition, VeriTrust Corp., a provider of document management services, signed a 40,800-sq.-ft. industrial lease at 5410 Dietrich Road in Cornerstone Industrial Park in the Northeast submarket. Partners represented the tenant.

New industrial spec development
NorthPoint Development has broken ground on a 2.2 million sq. ft. industrial park in San Antonio that could bring 1,950 new jobs to the area. The six-building development is planned for 175 acres in the China Grove neighborhood, which is nine miles east of downtown San Antonio. The first phase of Foster Commerce Center is getting started on a speculative basis—meaning without any tenants signed on—and will include two buildings totaling 650,000 sq. ft. that are expected to be completed in Q2 2023. The park will be less than 25 minutes from major manufacturing plants for Toyota and Navistar and about 1 hour and 15 minutes from Tesla’s new electric vehicle factory in Austin, Texas.

Investment sales trends
Real Capital Analytics data reports the quarterly sales volume for Q3 2022 in the San Antonio area at $95 million, down 8% from Q3 2021 at $103 million. The primary capital composition for buyers in 2022 was made up of 53% institutional investors, 24% private, and 18% cross-border. For sellers, the majority were 51% private investors, 33% REIT/listed, and 16% institutional. In a recent significant transaction, Westcore acquired Eisenhauer Business Park, a 377,318-sq.-ft. industrial development in Northeast San Antonio for $36.6 million. The newly built, four-building property was 95% leased at the time of sale.

Self-driving systems plant opens
Continental Automotive Systems, which manufactures parts for autonomous driving systems, has completed a $110 million, 215,000-sq.-ft. facility on 48 acres at 440 Kohlenberg & IH-35 in New Braunfels. The company expects to increase production, add more workers in 2023, and hire around 580 employees over the next four years.

Maruichi plans $75M facility
Maruichi Stainless Tube Texas Corp. is planning to build a 125,000-sq.-ft., state-of-the-art manufacturing facility in Seguin. Maruichi expects the project to break ground in Q1 2023 and be completed in Q1 2024. The $75 million project is anticipated to create 106 new jobs over a two-year period. Products produced by the company are used in power plants, the chemical industry, the semiconductor industry, hydrogen gas stations, the automotive industry, and structural machinery.

Average asking NNN rent
On average, monthly asking rental rates for the San Antonio market was $0.66 per sq. ft., as of Q3 2022, up quarter-over-quarter from $0.61 and up year-over-year from $0.60. The monthly average rate for Flex space is currently at $1.10 per sq. ft.; Manufacturing rates are at $0.58, and Warehouse/Distribution space sits at $0.57. The North Central ($1.01 PSF) and Northwest ($0.82 PSF) submarkets currently have two of the highest monthly overall average rates, followed by Guadalupe County ($0.68 PSF). As developers experience rising costs associated with bringing high-quality new projects to the market, rental rates may remain elevated.

Leta Wauson
Director of Research
[email protected]
tel 713 275 9618