Rates plateau as new construction pushes the market further into neutral conditions
EXECUTIVE SUMMARY
Q3 in Review
In Q3 2024, San Antonio’s industrial market experienced a significant slowdown in absorption and construction activity, with net absorption flat at 16,104 sq. ft., a sharp decline from the previous quarter. The manufacturing sector drove most of the positive absorption, while flex properties continued to struggle. Construction deliveries plummeted, and the pipeline shrank by 18% year-over-year. Vacancy rates held steady at 8.6%, but are up compared to last year, with a slight increase expected in the coming quarters due to lower pre-leasing rates. Leasing activity declined by 15%, driven largely by the Warehouse/Distribution sector. Despite these challenges, asking rents reached a new high, although growth was modest at just 1.4% quarter-over-quarter.
San Antonio Economic Update
San Antonio payrolls increased an annualized 10.1% in August (9,403 jobs). Job gains were driven mainly by government (39.3%, or 5,258 jobs), but also by leisure and hospitality (8.6%, or 989 jobs), education and health services (5.9%, or 863 jobs), manufacturing (17.6%, or 849 jobs), and trade, transportation and utilities (4.7%, or 807 jobs). All sectors experienced monthly growth except information (-5.3%, or 75 jobs). Year-to-date total nonfarm employment grew 1.5% in San Antonio, slower than Texas (2.2%) but higher than the U.S. (1.4%).
The San Antonio unemployment rate remained 3.8%. The unemployment rate in Texas was higher at 4.1%, as was the U.S. rate, at 4.2%.
MARKET OVERVIEW
Net Absorption Flat for the Quarter
Net absorption—move-ins minus move-outs—is at 16,104 sq. ft., down from the 442,673 sq. ft. absorbed in Q2 2024. Manufacturing properties accounted for the vast majority of the positive net absorption for the quarter, with tenants like MEI Rigging & Crating taking 138,365 sq. ft. at 1851 S Seguin Ave. For the year so far, Flex has struggled with negative net absorption (81,948 sq. ft.), while Manufacturing and Warehouse/Distribution have been positive with 258,119 sq. ft. and 108,515 sq. ft., respectively. Earlier in 2024, notable move-ins include 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 While the Pipeline Declined Moderately
Construction deliveries were very low for the quarter, with just 29,072 sq. ft. completed, this is down 97% from the 1 million sq. ft. completed one year ago. The under-construction pipeline has been trending down moderately over the past few quarters, with 5.7 million sq. ft. underway, this is off 18% 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 280 basis points from 5.8%. Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 6.4%, 3.4%, 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 Down 15% Over the Past Quarter
Quarterly leasing velocity—comprised of new leases and renewals—stood at 1 million sq. ft.—down 15% from 1.2 million sq. ft. in Q2 2024. The Warehouse/Distribution sector accounted for most of the leasing activity (69%), with limited activity for Flex and Manufacturing properties (14% and 17%, respectively). Recently signed leases included Mesa Solutions signing a lease for 186,324 sq. ft. at 5935 Eisenhauer Rd Building 2; Southern Warehousing signing a lease for 83,250 sq. ft. at 3703 N Panam; and Cruising Kitchens signing a lease for 81,852 sq. ft. at 702 San Fernando St.
Investment Sales Trends
CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q3 2024 at $44.8 million. Over the past year, 133 deals were completed in San Antonio’s industrial market with an average transaction price of $115 and an average cap rate of 8.2%. So far in 2024, large national portfolio sales that include industrial properties in San Antonio have accounted for most of the sales transactions. Other notable sales include Robinson Weeks Partners purchasing the 243,385-sq.-ft. warehouse at 6674 Cal Turner Dr. The property was 50% occupied at the time of the sale to Sugar Foods Corporation. Also, Greenpoint Partners purchased 647 N WW White Rd. This property is a 232,681-sq.-ft. property that was built in 1966 and was 100% vacant at the time of the sale. Greenpoint intends to repurpose the property into a truck terminal facility.
Record-High Asking Rents Remain Unchanged
The average monthly rental rate (NNN) for San Antonio’s industrial market increased slightly to $0.71 per sq. ft. –a record-high for the metro’s industrial sector—but only up 1.4% over the past quarter. The average monthly rate for Flex Space stood at $1.07 per sq. ft., while Manufacturing and Warehouse/Distribution Space rates were at $0.60 per sq. ft. and $0.65 per sq. ft., respectively. The Guadalupe County and Northwest submarkets were tied for the highest overall monthly average rate at $0.99 per sq. ft., followed by the North Central submarket at $0.92 per sq. ft.
Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]
Deal Spotlight
Partners’ John Colglazier, Lindsey Tucker, Kyle Kennan and David Oldham arranged a 74,880-sq.-ft. industrial lease with KW Automotive Inc. located at 9388 Corporate Drive in Selma, Texas.
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