Low vacancy contributes to record-high rates in San Antonio retail market
EXECUTIVE SUMMARY
Q2 in Review
The retail market is exceptionally tight, with a low vacancy rate (4%) and rising rental rates, driven by strong leasing activity and limited new supply. Despite a slight slowdown in net absorption this quarter, overall market fundamentals remain robust, indicating a favorable environment for landlords in the near term.
San Antonio Economic Update
San Antonio payroll job growth picked up in May and wages and retail sales tax revenue rose, while unemployment ticked down to 3.6% from 3.7% in April. In 2024, the unemployment rate hovered in the 3.5 to 3.7% range, not trending up or down. The unemployment rates in both Texas and the U.S. were higher at 4.0%. San Antonio payrolls increased an annualized 2.3% in May (2,220 jobs). Job gains were driven by other services (7.3%, or 251 jobs), construction (6.7%, or 361 jobs) and mining (4.7%, or 27 jobs). All other sectors experienced positive monthly growth except information (-3.2 %, or 46 jobs) and financial activities (-1.7%, or 140 jobs). Year-to-date total nonfarm employment grew 1.1% in San Antonio compared with gains of 2.8% in Texas and 1.9% in the U.S.
MARKET OVERVIEW
Leasing Activity On the Upswing
While net absorption was soft for the quarter, leasing activity was on the upswing with pointing to strong market fundamentals to continue over the near term. Notable leases recently signed include The Lodge Card Club committing to 27,278 sq. ft. at the Colonies North Shopping Center, Mexico Ceaty will open a new 21,000 sq. ft. restaurant at River Center Mall and HomeSense will be moving into 30,256 sq. ft. at the Northwoods Shopping Center later this year.
Net absorption Slowed for the Quarter but Healthy for the Year so Far
Net absorption was a negative 124,681 sq. ft. for the quarter. This was largely the result of a couple of larger move-outs, including BCFS leaving 54,009 sq. ft. at Wurzbach Center and the Iglesia Church vacating 43,623 sq. ft. at the Great Northwest shopping center. For the first half of 2024, net absorption has been a healthy 372,555 sq. ft. Notable new leases for 2024 include a new 108,890 sq. ft. Lifetime Fitness at The Legacy shopping center and the La Reina Night Club signing a 27,356 sq. ft. lease at 410 West Shopping Center.
Vacancy Rate Extremely Low at 4.0%
The overall vacancy rate in San Antonio’s Retail market is at 4.0%. This is up 20 basis points over the past quarter, and nearly the same as the 3.9% vacancy rate for Q2 2023. Like most major Retail markets across the country, vacancy is near a record low. San Antonio has maintained 4% or lower vacancy rate over seven consecutive quarters.
Deliveries Down Over 50% and Under Construction Pipeline Down 10% Over Past Year
New deliveries for the first half of 2024 have totaled 496,355 sq. ft. The slowdown in deliveries is one of the reasons for softer than average net absorption for the quarter, with most net absorption directly tied to new construction. The current under construction pipeline of 825,750 sq. ft. is up from last quarter but is still 10% below Q2 2023 when it stood at 920,084 sq. ft. With this level of construction and vacancy near a historic low, market fundamentals are expected to remain strongly landlord favorable for the foreseeable future.
Investment Sales Trends
Over the past year, 195 Retail properties were sold in the San Antonio Retail market with an average transaction price of $213 and an average cap rate of 6.0%. Notable sales in 2024 so far include Fortress Investment Group purchasing The Rim Shopping Center from Starwood, Macy’s selling their former department store to Andreal Properties at Rolling Oaks Mall, and Realty Income Corporation purchased the At Home location at Gateway Plaza as part of large nationwide portfolio sale that included 2,018 properties across 49-states for an all-stock transaction valued at $9.3 billion.
Rental Rates Up Slightly, Reaching All-time Highs
The average monthly rental rate (NNN) for San Antonio’s Retail market is $19.83 per sq. ft. This is up 5% for both the past quarter and year. Over recent years, rates have been trending higher and stand at all-time highs for the market overall.
Related Research Reports
Shopping Without Borders: Why Omnichannel Retail Reigns Supreme
Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]
San Antonio Retail Deal Spotlight
Partners’ Landan Dory and Jake Jones arranged a 4,841-sq.-ft. retail lease with Supreme Kirin LLC located at 4818 Walzem Road in San Antonio, Texas.