Tight vacancy and limited space propel San Antonio retail market to new highs

EXECUTIVE SUMMARY

Q3 in Review
San Antonio’s retail market continues to experience robust demand, though leasing activity has dropped by 20% from last year due to limited second-generation space. Net absorption for Q3 reached 187,982 sq. ft., rebounding from last quarter’s negative figures and largely mirroring new construction deliveries. The market’s vacancy rate remains tight at 4.0%, unchanged from last quarter and marking eight consecutive quarters at or below this level. New deliveries increased this quarter, yet the construction pipeline is down year-over-year, supporting landlord-friendly conditions. Investment activity remains strong, with average prices per sq. ft. increasing to $248, while rental rates increased 5% over the past year to an all-time high of $19.90 per sq. ft.

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 for 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

Leasing Activity Largely Limited to New Construction
Leasing activity has been healthy but is down 20% from last year, largely due to limited-option, second generation space to backfill. Notable leases recently signed include Academy Sports leasing 63,315 sq. ft. at the Singing Hills Shopping Center; The Lodge Card Club committing to 27,278 sq. ft. at the Colonies North Shopping Center; Mexico Ceaty opening a new 21,000 sq. ft. restaurant at River Center Mall; and HomeSense moving into 30,256 sq. ft. of space at the Northwoods Shopping Center later this year.
Net

Net absorption Bounced Back Over Past Quarter
Net absorption was 187,982 sq. ft. for the quarter, a big improvement from the negative absorption in the second quarter and largely in line with new construction deliveries. For the year so far, net absorption has been a healthy 560,537 sq. ft. Notable new leases for 2024 include a new 108,890-sq.-ft. Lifetime Fitness at The Legacy shopping center; La Reina Night Club signing a 27,356-sq.-ft. lease at 410 West Shopping Center; and DHL taking 25,000 sq. ft. at Fiesta Trails.

Vacancy Rate Remains Extremely Low at 4.0%
The overall vacancy rate in San Antonio’s retail market is at 4.0%. This is unchanged over the past quarter and only up slightly (30 basis points) over the past year. Like most major retail markets across the country, vacancy is near a record low, giving retail tenants looking to expand with limited options. San Antonio has maintained 4% or lower vacancy rate over eight consecutive quarters.

Deliveries Up for Quarter, but Construction Pipeline Down
New deliveries for third quarter of 2024 totaled 260,311 sq. ft. The current under construction pipeline of 825,717 sq. ft. is down 7% below Q3 2023 when it stood at 886,595 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, 188 Retail properties were sold in the San Antonio retail market with an average transaction price of $248 and an average cap rate of 6.1%. Notable recent sales include the Sterling Organization purchasing the Village at Stone Oak, a 179,806-sq.-ft. shopping center from SITE Centers; Bridge33 Capital purchasing a 135,000-sq.-ft. Lowe’s at Bandera Pointe; and Beam Real Estate purchasing the 102,587-sq.-ft. Rios Crystal Mall from BE Rios.

Rental Rates Up Slightly, Reaching All-time Highs
The average monthly rental rate (NNN) for San Antonio’s Retail market is $19.90 per sq. ft. This is up 5% over the past year and surpasses the previous all-time highs. With near historically low vacancy rates and limited construction underway, rates are expected to increase moderately over the next few quarters.

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]