San Antonio Retail market continues at sub-4% vacancy.

EXECUTIVE SUMMARY

Q2 in Review
By the end of Q2 2023, the overall vacancy rate in the San Antonio retail market remained flat from Q1 2023 at 3.9%. The unchanged vacancy rate is partially due to high construction and financing costs slowing project starts and completions in recent months. Construction decreased 11% from the prior quarter (1.0 million sq. ft.) with 920,084 sq. ft. in the pipeline as of Q2 2023. In addition, deliveries decreased 27% quarter-over-quarter from 330,612 sq. ft. in Q1 2023 to 239,842 sq. ft. in Q2 2023. Despite the decreases, year-to-date net absorption and delivery statistics fundamentals at 577,605 sq. ft. and 570,454 sq. ft., respectively—indicating balanced market fundamentals. Rent growth continues to keep pace with inflation, currently standing at $18.90 per sq. ft.

San Antonio Economic Update
San Antonio’s unemployment rate increased to 4.0% in May 2023, slightly up from 3.8% in April 2023. The metro’s jobless rate beat the nation’s rate (3.7%) but was lower than the state’s rate (4.1%). Professional and business services saw the most growth (3,987 jobs, 33.5%), while leisure and hospitality experienced the largest decline (97 jobs, 0.8%) among the sectors. San Antonio wages also increased by an annualized 3.0% in May 2023—moving the average hourly wage up to $27.94.

MARKET OVERVIEW

Construction and Deliveries Decrease Year-Over-Year
The San Antonio retail market ended the quarter with 920,084 sq. ft. in the construction pipeline, slightly down from the previous quarter’s 1.0 million sq. ft. Partially due to high financing costs, construction activity has slowed throughout Q2 2023. As recently cited by The Real Deal, real estate developers have noted that interest rates on construction loans are up over 300 basis points posing challenges for new projects. New construction starting in Q2 2023 included a 34,306-sq.-ft. retail center (The Shops at Sawmill Glade) at the intersection of Old FM 471 and Sawmill Glade in May 2023, and a 21,459-sq.-ft. strip center (Roadrunner Creek) at the intersection of UTSA Boulevard and UTEX Boulevard in May 2023. Deliveries decreased 27% quarter-over-quarter from 330,612 sq. ft. in Q1 2023 to 239,842 sq. ft. in Q2 2023.

Positive Net Absorption in Q2 Net Absorption 2023
Net absorption—move-ins minus move-outs—for the quarter was at 240,426 sq. ft. at the end of Q2 2023. Although 29% down quarter-over-quarter, net absorption has not dipped into negative territory since Q3 2022 (-63,989 sq. ft.)—marking 11 straight quarters of positive absorption. Year-to-date, net absorption is at 577,605 sq. ft. in the San Antonio retail market. In addition, the overall vacancy rate in the San Antonio retail market as of Q2 2023 remained unchanged from Q1 2023 at 3.9%. In Q2 2023, San Antonio had the second-lowest retail vacancy rate (3.9%) behind Austin’s retail vacancy rate (3.1%) among the state’s four largest metro areas.

 Asking Rents Increase 5% Year-Over-Year
At the end of Q2 2023, San Antonio retail triple-net average rates stood at $18.90 per sq. ft., up 2% quarter-over-quarter from $18.58 per sq. ft., and up 5% year-over-year from $18.03 per sq. ft. Overall, rent growth continues to trend upward, although at a slower pace than Q2 2022, when 8% year-over-year rent growth was recorded in the San Antonio retail market. On the quarter, the CBD submarket had the highest average rate at $24.78 per sq. ft. On the other hand, the Northeast submarket had the lowest average rate at $14.86 per sq. ft.

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