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San Antonio’s retail market remained tight during the first quarter of 2019, with the overall vacancy rate up marginally to 5.1%, an increase of 20 basis points quarter-over-quarter, and 80 basis points year-over-year. With the rate at such a low level, small fluctuations up and down are not particularly significant.
Retail space remains tight in 2019
San Antonio’s retail market remained tight during the first quarter of 2019, with the overall vacancy rate up marginally to 5.1%, an increase of 20 basis points quarter-over-quarter, and 80 basis points year-over-year. With the rate at such a low level, small fluctuations up and down are not particularly significant. Net absorption rebounded back in positive territory during the first quarter at 87,000 sq. ft. after dropping to negative 335,000 sq. ft. in Q4 2018. That was only the second time in almost eight years that overall quarterly net absorption wasn’t positive. Metro San Antonio’s leasing activity stood at 662,000 sq. ft., up 66% from the previous quarter, and a 20% increase from the previous year. The retail market saw overall average asking rates rise $0.04 per sq. ft. in 2019 to $15.76 per sq. ft. on a triple-net basis. San Antonio’s retail market has remained tight for the last five years and has seen occupancy rates at or above 94.5% for fifteen consecutive quarters, or Q3 2015.
San Antonio economic indicators
In February the San Antonio economy grew at a steady rate. The unemployment rate fell to 3.4%, well below the state and national rates of 3.8%. The metro labor force expanded an annualized 2.4% in February—a slowdown from January’s 3.0%. Job growth was mostly positive, with construction leading the way with a net 1,800 jobs. Leisure and hospitality also grew at a strong rate, adding 2,600 jobs, followed by the mining, government and information industries. The San Antonio Board of Realtors reported that for the first quarter of the year ending in March, home sales increased 4% compared to the first quarter of 2018. The average price this quarter went up 3% year-over-year to $256,221 and the median rose 4% to $223,400.
San Antonio retail maintains high occupancy
San Antonio’s retail market has been gradually tightening for the last three years and has seen occupancy rates at or above 94.5% for fifteen consecutive quarters, or Q3 2015. This is due in part to steady demand for existing retail space and coordinated, rising, retail construction. This controlled growth will support the steady retail progression taking place in the retail market. While new development has been slower to deliver, of the current 365,000 sq. ft. completed in Q1 2019, only 10% is available to lease. And of the 1.8 million sq. ft. of projects in the pipeline, about half of that space has been spoken for. Contributing to the 87,000 sq. ft. of net absorption during Q1 2019, tenants moving into large amounts of space include: IKEA taking occupancy of 289,000 sq. ft. at 13905 N. I-35 Freeway in the Northeast submarket; Santikos Entertainment moving into 87,000 sq. ft. at 18200 I-35 in Cibolo; and 73,000 sq. ft. now occupied at 18658 I-35 N in Schertz.
H-E-B Crossing changes hands
Real Capital Analytics data reports the quarterly sales volume for Q1 2019 in the Greater San Antonio area at $133.2 million. The primary capital composition for buyers in the first quarter of 2019 was made up of 85.9% private investors, and 12.9% cross-border investors. For sellers, the majority was 85.9% private, and 12.9% user/other investors. In February H-E-B LP sold H-E-B Crossing at 11650 Bandera Road, a 150,582-sq.-ft. retail center in San Antonio, for an undisclosed price. The Rainier Companies acquired the property, shadow-anchored by a 182,000-sq.-ft. H-E-B grocery store. The property was fully leased at the time of sale to anchor tenants Conn’s HomePlus and Academy Sports + Outdoors, and additional tenants Starbucks, Chase Bank and H&R Block. According to the Bexar County Appraisal District, the property was last assessed for $21.4 million.
Leasing activity remains steady
Leasing activity increased during the first quarter with signed deals totaling 662,000 sq. ft. in the San Antonio market—compared to 400,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had the North Central and Northwest submarkets with the lion’s share of the activity with a combined 72%. The largest lease signings occurring in 2019 included: the 73,000-sq.-ft. deal inked by Incredible Pizza Company at 2015 SW Loop 410 in the Far West submarket; the 61,762-sq.-ft. deal signed by TRU FIT at 201 Central Park Mall in the North Central submarket; and the 46,800-sq.-ft. lease signed by TRU FIT at 7014 FM 78 in the North Central submarket.
More brands seeing potential in the Alamo City
Royal Blue Grocery and Pluckers Wing Bar are both expanding their brands to San Antonio. Royal Blue opened its first San Antonio micro grocery downtown in April, and this summer Pluckers will open its first San Antonio location at I-10 and North Loop 1604 West. Royal Blue Grocery, which opened its first store in 2006, has six locations in Austin and two in Dallas. Pluckers was started in 1995 and has expanded to 24 locations throughout Texas and Louisiana. Both brands were started in Austin and join other brands that have expanded into San Antonio such as Torchy’s Tacos and Kendra Scott jewelry.
Average asking rents rise
The retail market saw overall average asking rates increase slightly by $0.04 per sq. ft., quarter over quarter to end the first quarter at $15.76 per sq. ft. on a triple-net basis. The average asking rent reached its highest level ever during the third quarter of 2018 at $15.78 per sq. ft. Leasing of existing square footage in older buildings has contributed to softer rent growth, just as concessions such as free rent and tenant improvement allowances make posted rents less meaningful as a market indicator. All said, the highest-quality space, with the best location, and ease of accessibility will generate the highest rents.
Median price for single-family homes increases
The San Antonio Board of Realtors reported that for the first quarter of the year ending in March, home sales increased 4% compared to the first quarter of 2018. The average price this quarter went up 3% year-over-year to $256,221 and the median rose 4% to $223,400. Sales in Bexar County also reported increases, with total sales rising 4.7% in March, and 5% in the first quarter. The average sales price of a home in Bexar County in March rose 2.6% year-over-year to $249,996 while months of inventory continued to remain low with just 3.2 months available.
Director of Research
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