Quarterly Market Report

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Industrial indicators remain steady

San Antonio’s industrial market has remained steady in the first half of 2017, and ended the second quarter on par following Q1 2017. The vacancy rate for the metro area remained at 6.6% in Q2 2017, and rose 80 basis points year-over-year. In addition, net absorption stood at positive 189,178 sq. ft. as of the quarter’s end, compared to negative 145,346 sq. ft. at the end of the first quarter. Demand in the market has pushed Warehouse/Distribution rents to new highs, with the average asking rate per sq. ft. at $5.45 per sq. ft. Flex space at $9.02 per sq. ft. is down from its all-time high of $10.40 during Q1 2017, while Manufacturing space has remained near its five-year average of $4.28 per sq. ft. Close to 950,000 sq. ft. has delivered in 2017 with about 72% of that space vacant. There is still 1.1 million sq. ft.—all Warehouse/Distribution space—under construction, with 84% available for lease. The amount of current and upcoming vacant space may lead the way to more challenging times in the San Antonio industrial market.

Unemployment dropped to lowest point this year

Economic indicators in San Antonio displayed moderate advances in May. Jobs increased at a restrained but progressive stride, while the unemployment rate dropped to its lowest point this year. The San Antonio unemployment rate fell for a second month to 3.8% in May, below the national rate of 4.3% and state rate of 4.8%. However, growth in the labor force has been somewhat slower so far this year at 1.0%, compared with 3.2% in 2016. Regarding the number of people in San Antonio, the metropolitan area ranks No. 3 among U.S. cities for the largest one-year population increase from July 2015 to July 2016, according to the U.S. Census Bureau. Meanwhile, New Braunfels ranked No. 9 on the list of cities with more than 50,000 residents that had the highest growth rate over that one-year period.





Decreased supply with steady demand

Most of the 203,625 sq. ft. delivered to the San Antonio industrial market in Q2 2017 was not yet occupied by tenants. Net demand rebounding out of the red this quarter along with a smaller amount of sq. ft. delivered to the market resulted in an unchanged vacancy rate. San Antonio’s industrial vacancy rate, measuring all space not currently occupied by a tenant, remained the same quarter-over-quarter, at 6.6%. Among the major property types, Warehouse/Distribution ended the quarter at 5.8% vacancy, Manufacturing closed at 7.4% of unoccupied space, and Flex space finished at 9.7% vacancy. The Comal County submarket had the highest overall vacancy rate at 14.5% (in part from 18.2% of vacant Flex space), and the Guadalupe County submarket had the lowest overall vacancy rate at 1.8% with only a small amount of Warehouse/Distribution space available for lease.

Research-Quarterly-SanAntonio-Industrial-Q2-2017 Graph 3

Net absorption back in black

San Antonio ended the second quarter of 2017 with positive 189,178 sq. ft. of net absorption. Flex space represented positive 102,190 sq. ft., Warehouse/Distribution space was responsible for positive 115,525 sq. ft., and Manufacturing posted negative 28,537 sq. ft. This marked the 10th time in the last 11 quarters of overall positive absorption for the San Antonio industrial market. The major move-ins contributing to net absorption in Q2 2017 include 147,840 sq. ft. of space occupied by Southern Warehousing at Interchange East Distribution Center-Building 1, in the South submarket; 57,600 sq. ft. taken by OpTech Gente Inc. at Port San Antonio-Building 3, in the Northeast submarket; and 54,400 sq. ft. of space absorbed by an undisclosed tenant in Cornerstone Industrial Park, also in the Northeast submarket. The major move-outs during 2017 involve ProBuild moving out of 176,570 sq. ft. at 9901 Doerr Lane; XPO Logistics, Inc. vacating 74,400 sq. ft. at 1511 Cornerway Blvd; and Buell’s Inc. leaving 65,106 sq. ft. at 816 N. Main St.

Research-Quarterly-SanAntonio-Industrial-Q2-2017 Graph 4

Construction continues at 1.1 million sq. ft.

There is currently about 1.1 million sq. ft. under construction in the San Antonio industrial market, with a large percentage of that space available for lease. The largest projects underway at the end of second quarter were Enterprise Industrial Park – Bldg. III, a 359,251-sq.-ft. building, delivering in the fourth quarter 2017; and Cornerstone Industrial Park – Building 3, a 144,137-sq.-ft. facility that is 65% pre-leased, with the expected delivery in August 2017. Some of the notable Q2 2017 deliveries include 303 NE Loop 410-Building 2, a 71,520-sq.-ft. warehouse; and 14886 Tradesman Dr., a 40,000-sq.-ft. Flex building that is in the Northwest submarket, 100% available for lease. Year-to-date 2017, 11 buildings totaling 945,379 sq. ft. were completed in the San Antonio market area. Almost 400,000 sq. ft. of those completions took place in the Comal County submarket, which includes the cities of Schertz and New Braunfels.

Research-Quarterly-SanAntonio-Industrial-Q2-2017 Graph 5

Transaction spotlight

HPI Real Estate Services & Investments recently purchased a new 214,500-sq.-ft. industrial warehouse at 9850 Doerr Lane, named Schertz 1. Just completed in March, the newly constructed property is in Schertz on the I-35 corridor. It is located on 15 acres, not far from Amazon, Caterpillar, FedEx, and O’Reilly Auto Parts, all who run warehouse/distribution centers. The Northwest and North Central submarkets, along the corridor to Austin, are the most sought-after areas with their proximity and convenient access to other major interstates.

Research-Quarterly-SanAntonio-Industrial-Q2-2017 Graph 6

Leasing activity on par

Second quarter leasing activity has remained unchanged from the first quarter at about 1 million sq. ft. Flex space fulfilled 235,683 sq. ft., Warehouse/Distribution space realized about 741,306 sq. ft., while 41,126 sq. ft. of Manufacturing space was leased. Year-over-year leasing activity is down by 850,000 sq. ft.; nonetheless, significant lease agreements signed this quarter included 93,377 sq. ft. of distribution space at 8562 NE I-410 Loop, in the Northeast; an inked deal for 84,947 sq. ft. of distribution space at 5007 Eisenhauer Road., in the Northeast; and a 34,980-sq. ft. lease signed by John Hart Design at 220 Burleson St., also in the Northeast submarket.

Research-Quarterly-SanAntonio-Industrial-Q1Q22017 Graph 7

Asking rates remained steady

The industrial market saw overall full-service average asking rates rise $0.08 per sq. ft. quarter-over-quarter to finish at $5.71 per sq. ft. at the end of Q2 2017. Rates for industrial real estate throughout San Antonio show that the North Central submarket has the highest prices for industrial space at $13.34. The average rate for Flex space is currently highest in the Northwest submarket, at $11.68 per sq. ft.; Manufacturing rates peak at $10.92; and Warehouse/Distribution space is at its highpoint at $7.43, the latter two in the North Central submarket. The North Central, Northwest and Northeast higher rental rates are no surprise—the combined submarkets total 67 million sq. ft., 62% of the metro’s 109 million sq. ft. of industrial space.

Research-Quarterly-SanAntonio-Industrial-Q2-2017 Graph 8

Leta Wauson
Director of Research
tel 713 275 9618

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