Year-to-date deliveries surpass 9 million sq. ft.

EXECUTIVE SUMMARY

Q4 in Review
By the end of Q4 2023, the overall vacancy rate in the San Antonio industrial market rose 420 basis points year-over-year from 3.4% to 7.6%. Demand for Flex space continues to grow—year-over-year, the Flex vacancy rate decreased 120 basis points from 5.5% to 4.3%. However, Warehouse/Distribution continues to drive San Antonio’s industrial market—contributing 367,161 sq. ft. (72%) towards the fourth quarter’s positive absorption. Net absorption is at 508,182 sq. ft.—bringing the year-to-date total to 2.3 million sq. ft. Deliveries are at 3.4 million sq. ft. Year-to-date, deliveries reached a record-high of 9.1 million sq. ft.—with the South accounting for 47% of deliveries in 2023. Lastly, the average monthly rental rate (NNN) reached $0.70 per sq. ft.—a record-high for the metro’s industrial sector.

San Antonio Economic Update
San Antonio’s unemployment rate decreased to 3.8%, slightly down from 3.9% in September 2023, according to the latest release of San Antonio’s Economic Indicators. The metro’s jobless rate lagged the state and national rates at 4.1% and 3.9%, respectively. In October, San Antonio’s labor force increased by an annualized 3.6%, as strong job growth offset gains in the labor force, leading to a lower employment rate. The largest gains by sector included: manufacturing (+729 jobs, 15.5%), leisure and hospitality (+1,623 jobs, 14.6%), and government (# of jobs, 5.8%). The largest declines by sector included: financial activities (-200 jobs, -0.5%), education and health services (-299 jobs, -2.0%), and other services (-17 jobs, -0.5%).

MARKET OVERVIEW

Positive Net Absorption in Q4
Net absorption—move-ins minus move-outs—is at 508,182 sq. ft., 60% down from the prior year’s 1.2 million sq. ft. Year-to-date, is at 2.3 million sq. ft. Flex space and Warehouse/Distribution space recorded positive net absorption of 219,686 sq. ft. and 367,161 sq. ft. respectively. Manufacturing space logged negative absorption of -54,704 sq. ft. Despite the decrease, San Antonio’s industrial market experienced notable move-ins such as Southern Warehousing occupying a 273,344-sq.-ft.distribution center at 4787 Rittiman Road in April, and Love’s Travel Stops & Country Stores filling a 253,000-sq.-ft. warehouse at 21548 South Farm to Market 471 in December.

Deliveries Surpass 3 Million Sq. Ft.
By the end of Q4 2023, deliveries in the San Antonio industrial market increased to 3.4 million sq. ft., surging year-over-year from 1.2 million sq. ft. Year-to-date deliveries reached 9.1 million sq. ft.—a record-high for the metro’s industrial sector—slightly above the prior year-to-date statistic of 9.0 million sq. ft. The South submarket secured its lead, accounting for 4.2 million sq. ft. (47%) of deliveries by the end of 2023. Some of the most notable completions in 2023 included a 560,660-sq.-ft. distribution center at 810 Rosillo Creek Boulevard (South submarket) in March 2023, and a 528,040-sq.-ft. distribution center along Interstate Highway 10 Frontage Road in November 2023. Construction is at 3.7 million sq. ft., 60% down from 9.4 million sq. ft. the prior year. Over the prior three years, construction averaged 7.0 million sq. ft. annually.

Vacancy Rate Increases to 7.6%
The overall vacancy rate in San Antonio’s industrial market is 7.6%. Quarter-over-quarter, the vacancy rate increased 180 basis points from 5.8%. Year-over-year, the vacancy increased 420 points from 3.4%. Only 34% of year-to-date deliveries are fully leased, contributing to the increase in the overall vacancy rate. Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 4.3%, 2.7%, and 9.1%, respectively. Flex space was the only product type to experience a decrease in its vacancy rate (120 basis points) year-over-year. According to Steve Triolet, Senior Vice President of Research at Partners, this is due to Flex’s affordability coupled with the metro’s strategic location.

Leasing Down 12% Year-Over-Year
Quarterly leasing velocity—comprised of new leases and renewals—stood at 1.5 million sq. ft.—12% down from 1.7 million sq. ft. in Q4 2022. Despite the decrease, industrial leasing activity in San Antonio remains consistent compared to its 10-year average of 1.8 million sq. ft.—a 346,076 sq. ft. difference. Year-to-date, leasing activity is at 7.4 million sq. ft., compared to the prior year-to-date figure of 9.1 million sq. ft. By the end of the year, 111 deals were signed, averaging 51,343 sq. ft., with notable exceptions in April by Southern Warehousing (273,334 sq. ft.), and Weyerhaeuser (252,600 sq. ft.) in October.

Investment Sales Trends
CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q4 2023 at $34.6 million, 81% down from $185 million in Q4 2022. By year-end, 222 deals were completed in San Antonio’s industrial market with an average transaction price of $110 and an average cap rate of 7.9%.Notable transactions in 2023 included CREA Investments and NCA Realty Partners acquiring 490,083-sq.-ft. distribution center (Connection Park Logistics Center) at 6851 Cal Turner Drive from Triten Real Estate Partners in September, and Mohr Capital acquiring a 439,809-sq.-ft. distribution center (Foster Ridge 2) at 7015 Lancer Boulevard from Becknell Industrial in March.

Record-High Asking Rent
The average monthly rental rate (NNN) for San Antonio’s industrial market increased to $0.70 per sq. ft. –a record-high for the metro’s industrial sector—3% up from the previous year’s $0.68 per sq. ft. The average monthly rate per square foot for Flex Space stood at $1.19 per sq. ft., while Manufacturing and Warehouse/Distribution Space rates were at $0.56 per sq. ft. and $0.64 per sq. ft., respectively. The Guadalupe County and North Central submarkets command the highest overall monthly average rate at $0.97 per sq. ft., followed by the Northwest submarket at $0.87 per sq. ft.

Alex Babcock
Senior Research Analyst
[email protected]
tel 713 275 9618