Low Vacancy and Deliveries Mute Options for Tenants
EXECUTIVE SUMMARY
Q4 in Review
San Antonio’s retail market continues to demonstrate robust fundamentals, despite a slowdown in leasing activity and new deliveries. Leasing activity for Q4 2024 totaled 506,552 sq. ft., a 23% decline year-over-year, primarily due to a limited supply of second-generation space available for backfill. Key leases included Restaurant Depot at R/E Business Center, Crunch Fitness at Wurzbach Center and TesoLife at University Square. Net absorption was virtually flat for the quarter at 1,064 sq. ft., a significant decrease compared to earlier quarters; however, 2024 still ended strong overall with 561,601 sq. ft. of positive absorption. The vacancy rate remains extremely low at 4.0%, a figure consistent over nine consecutive quarters, reinforcing the landlord-favorable dynamics in the market.
Investment activity remained steady with 195 properties sold over the past year, averaging $243 per sq. ft. and a cap rate of 6.2%. Average rental rates rose 6% year-over-year, reaching $19.87 per sq. ft. (NNN), near record highs. With a limited construction pipeline—down 8% from a year ago at 995,084 sq. ft.—and demand outpacing supply, rental rates are expected to continue their moderate upward trajectory. Overall, San Antonio’s retail market is poised for sustained growth, supported by its low vacancy, rising rental rates, and continued investor interest.
San Antonio Economic Update
The San Antonio unemployment rate ticked up to 3.9% in November. The unemployment rates in Texas and the U.S. both rose to 4.2%. The San Antonio Business-Cycle Index, a gauge of economic conditions in the metro area, increased an annualized 1.7% in November.
San Antonio payrolls rose in November, growing an annualized 2.2% (2,200 jobs). From August to November, payrolls grew 1.3% (3,800 jobs), with gains led by leisure and hospitality (4.8%, or 1,700 jobs), education and health services (3.2%, or 1,400 jobs), and professional and business services (2.2%, or 900 jobs). Government, manufacturing and mining sectors lost jobs.
MARKET OVERVIEW
Leasing Activity Down, Partially Due to Limited New Deliveries
Leasing activity has been healthy with 506,552 sq. ft. in Q4 2024 but was down 23% from Q4 2023, largely due to limited options second generation space to backfill. Notable leases recently signed include Restaurant Depot signing a 56,440 sq. ft. lease at R/E Business Center, Crunch Fitness signing a 54,009 sq. ft. lease at Wurzbach Center and TesoLife signing a 26,250 sq. ft. lease at University Square.
Net Absorption Flat but Positive for the Quarter
Net absorption was flat for the quarter with 1,064 sq. ft. for the quarter, this was significant slowdown for both the quarter and year over year. For 2024 in total, net absorption was a healthy 561,601 sq. ft. Notable new leases for late 2024 include EOS Fitness taking 39,439 sq. ft. at Windsor Park Center.
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 (20 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 nine consecutive quarters.
Deliveries Down While Construction Pipeline Increases
New deliveries for Q4 2024 were very low with just 50,063 sq. ft. completed. The current under construction pipeline of 995,084 sq. ft. is down 8% below Q4 2023 when it stood at 1,084,227 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 $243 and an average cap rate of 6.2%. Notable sales in late 2024 include Bianco Properties purchasing the 103,813 sq. ft. San Antonio Crossing shopping center from The Rainier Companies and Saremco sold the 57,622 sq. ft. Love Oak Shopping Center as part of a larger portfolio sale.
Rental Rates Up 6% Over Past Year, Near All-Time High
The average monthly rental rate (NNN) for San Antonio’s Retail market is $19.87 per sq. ft. This is up 6% over the past year and less than 1% from all-time highs seen in mid-2024. With vacancy rates near historic lows and limited construction underway, rates are expected to increase moderately over the next few quarters.
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Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]
