Download the PDF
Vacancy tightens with demand outpacing supply
San Antonio’s industrial market tightened during the first quarter of 2018, with the overall vacancy rate decreasing to 5.4%, a drop of 20 basis points quarter-over-quarter, and 40 basis points year-over-year. In addition, net absorption gained traction and rose to 270,831 sq. ft. as of the quarter’s end, compared to 35,486 sq. ft. at the end of the fourth quarter 2017, and up significantly from -277,302 sq. ft. this time last year. New supply delivered to the market fell to 118,716 sq. ft., a decrease of 80% from Q4 2017, and 85% from Q1 2017. There is an additional 3.1 million sq. ft. under construction, with only 27% available for lease. Triple net average asking rents increased marginally by $0.06 per sq. ft. quarter-over-quarter, and $0.24 year-over-year to end at $5.98 per sq. ft.—an all-time high.
Moderate job growth in San Antonio
The San Antonio economy continued to grow at a steady pace in February. Economic indicators, such as the San Antonio Business-Cycle Index, grew slightly above its long-term trend at an annualized 3.4%. Job growth was moderate, increasing at a 2.9% annualized rate over the three months through February, with increases in construction, mining, and manufacturing. San Antonio’s population grew by 2.0% in 2017, similar to 2016 and near its long-term average of 2.1%. The unemployment rate increased slightly to 3.4% in February as the Texas and U.S. rates held steady at 4.0% and 4.1%, respectively.
Vacancy at 6% or below for 11 consecutive quarters
San Antonio’s industrial vacancy rate, measuring all space not currently occupied by a tenant, dropped to 5.4%, down from 5.6% quarter-over-quarter, and down from 5.8% year-over-year. Among the major property types, Warehouse/Distribution ended the quarter at 5.5% vacancy, Manufacturing closed at 2.9% of unoccupied space, and Flex space finished at 9.8% vacancy. Vacancy in the San Antonio industrial market has remained at or below 6% for the last 11 consecutive quarters, or Q3 2015. With the rate at such a low level, small fluctuations up and down are not particularly significant. Supply shortages continue in the industrial market for certain types of space, especially large warehousing units (60,000+ sq. ft.). The market is awaiting the completion of about 2.8 million sq. ft. of warehouse/distribution space in several new projects that will help alleviate the need for space.
Positive net absorption on the rise
At the end of the first quarter, net demand increased to 270,831 sq. ft., a significant increase from 35,486 sq. ft. last quarter and moving farther out of the red zone seen this time last year at negative 277,302 sq. ft. The amount of space delivered to the market in Q1 2018 stood at 119,000 sq. ft., with 76% available for lease. The major move-ins contributing to positive net absorption in Q1 2018 include Southern Warehousing & Distribution occupying 140,272 sq. ft. of space at 3200 E. Houston St. in the Northeast submarket; 68,568 sq. ft. of space absorbed by Maestro in Port San Antonio at 709 Raymond Medina St., and Boral moving into 53,483 sq. ft. at Eisenhauer Point – Building 3 in the Northeast sector. The major move-outs involve GSA moving out of 111,800 sq. ft. at 3030 Aniol Road; Bimbo Bakeries USA, Inc. vacating 100,566 sq. ft. at 1923 Nevada St., and Samuels Glass Co. leaving 96,239 sq. ft. at 221 Newell Ave.
Construction pipeline remains steady
A portion of the increase in industrial construction is unquestionably attributable to ecommerce, which has strengthened industrial sector demand. Consequently, industrial completions have been relatively strong; delivering 13.3 million sq. ft. of warehouse/distribution space to the San Antonio industrial market over the last 10 years. There is currently 3.1 million sq. ft. under construction, with the majority, or 90%, warehouse/distribution space. The largest projects underway at the end of the first quarter are a $150 million, 1.5 million-sq.-ft. distribution center for TJX Companies Inc., the parent company of the T.J. Maxx and Marshalls retail chains, bounded by Loop 410 on the north, Goeth Road on the south, the San Antonio River on the east and U.S. 281 on the west; and the Ben E. Keith Co. food service distribution facility in Selma, replacing one that has operated in northeast San Antonio since the 1990s. As part of the incentive package, the city agreed to change the name of the street on which the distribution facility is being built from Alamo Parkway to Ben E. Keith Way, thus, the 563,000-sq.-ft. project is located at 17635 Ben E. Keith Way in the Comal County submarket.
Investment sales activity up 55%
Real Capital Analytics data reports year-to-date as of March 31, 2018 industrial sales volume in the San Antonio area at $73.8 million, resulting in a year-over-year change of 55.7%. The buyer composition is made up primarily of REIT/Listed investors at 77%, with the remaining private buyers at 23%. A top investment sale in the San Antonio industrial market is the Colony Industrial acquisition of the Enterprise Industrial Park in Schertz, for the two-building, Class A light industrial complex totaling 639,797 sq. ft. from Robinson Weeks Partners. The property was 88% occupied at the time of the $52.1 million sale. This sale represents the increasing need of ecommerce business for well-located, warehouse space for the “last mile” in the logistics chain.
Leasing activity decelerated
Leasing activity slowed during the first quarter with a total of 708,000 sq. ft. in the San Antonio industrial market. This is in comparison to 1.0 million sq. ft. leased throughout Q4 2017, and 1.7 million sq. ft. this time last year. The largest lease signings occurring in 2018 included the 78,000-sq.-ft. lease at 1803 Grandstand Dr. in the Northwest submarket; the 48,933-sq.-ft. deal inked at Eisenhauer Point Business Park in the Northeast submarket; and the 44,000-sq.-ft. lease completed by OmniSource at Eisenhauer 35 Distribution Center, also in the Northeast submarket. These three lease transactions totaling 171,000 sq. ft. all have move-in dates during Q2 2018.
Average asking NNN rates at all-time high
The industrial market saw overall NNN average asking rates rise $0.06 per sq. ft. quarter-over-quarter, and $0.24 year-over-year to finish at $5.98 per sq. ft.—an all-time high—at the end of Q1 2018. The Northwest submarket has the highest prices overall for industrial space at $8.54. The Avalon at 9630 Corporate Dr. in Selma, TX – Guadalupe County is asking $14.00-$15.00 NNN top rent for Flex space; Manufacturing rates peak at $5.41 in the Northeast submarket; and Warehouse/Distribution space has an average asking price of $5.43 across all major property types.
Director of Research
tel 713 275 9618