San Antonio is one of the largest and fastest-growing cities in the U.S., with Northwest San Antonio in particular experiencing impressive growth during the past few years. The Northwest submarket is bounded by the Bexar County Line to the northwest, Northwest Military Highway/FM 1535 to the northeast, and US Highway 90 to the south. The submarket’s proximity to all major infrastructure arteries, including Interstate 10, Loop 410, and Loop 1604, have made it a bustling business hub for major employers such as USAA, Valero, NuStar Energy and Security Service Federal Credit Union. Aside from these notable businesses, local attractions include the main campus of the University of Texas at San Antonio, the South Texas Medical Center, and La Cantera shopping center. Businesses in the submarket are comprised of 39% of all employees in Bexar County. Residents in the Northwest submarket have an estimated median household income of $63,693, above the Bexar County estimated median of $56,797.
The Northwest submarket continues to be one of the most desirable places to live and work in the San Antonio MSA. The projection for the submarket’s future is relatively stable as it beneﬁts from the growth of the metro San Antonio economy, but is largely shielded from the adverse impacts of business cycle ﬂuctuations due to diversity in total number of residing businesses, relative wealth of the residents, geographic proximity to central San Antonio, and in-place infrastructure. Investors interested in a densely populated, stable market supported by recession-resistant institutions will be attracted to this market.
Inventory & development
The Northwest submarket contains 17.4 million sq. ft. of inventory. Class A space represents 5.8 million sq. ft., Class B space makes up almost 10 million sq. ft., and the remaining 1.6 million sq. ft. is Class C space. There is about 440,000 sq. ft. of non-owner-occupied space under construction in the Northwest submarket with about 160,000 sq. ft. available for lease. Ongoing activity includes Security Service Federal Credit Union’s plans to move into its new 270,000-sq.-ft. campus, currently under construction at 14880 I-10 W. and expected to be completed in the summer of 2017. Meanwhile, Landmark One, the 167,618-sq. ft., 6-story office building at 15727 I-10 W. is scheduled for completion in August 2018 with around 8,300 sq. ft. pre-leased. Net demand has slowed from the pace it was at in the past two quarters, causing a slight uptick in vacancy. An indication of the market’s overall strength is the recent announcement of the upcoming groundbreaking of Pinnacle Oaks Tech Center, Phase One, a $100-million, 450,000-sq.-ft. business park located on 21 acres at 4830 N. Loop 1604 W.
Vacancy & rental rates
The Northwest submarket vacancy rate rose to 12% in Q2 2017, an increase of 100 basis points quarter-over-quarter—though a 70-basis-point decline year-over-year. The increase is driven in part by new construction delivered vacant. Despite the additional space and bump up in vacancy, full-service average asking rents reached an all-time high, increasing $0.20 per sq. ft. q-o-q to close the second quarter at $20.97 per sq. ft. This also marks a $0.52-per-sq.-ft. increase from one year ago. Net absorption decreased to negative 54,287 sq. ft. as of the quarter’s end, down from 277,464 sq. ft. at the end of the first quarter. New ofﬁce product coupled with high ofﬁce-using job growth in the Northwest submarket has resulted in a tightening ofﬁce market below the overall San Antonio office market average of 12.3%.
Investor appetite has remained strong, causing year-to-date sales volume to increase to $103,175,000, resulting in a year-over-year change of 86.1%. While at the same time, the average price per sq. ft. for the prior 12 months is at $138, up 5.1%. Recent significant transactions include Velocis purchasing seven buildings at Legacy Oaks. The properties, which are located at 5360-5430 Fredericksburg Road, were built in 1981, renovated in 2008 and 75% occupied at the time of the transaction. Another notable deal saw Domicilio LHS LLC buying 4350 Lockhill Selma in Shavano Park. The 116,545-sq.-ft., three-story building was constructed in 2008 and was 85.5% leased at the time of sale. Lastly, year-to-date results for capital flows reflected that 75% of acquisitions were made by private investors and 25% institutional in the Northwest submarket during 2017. This is in comparison to 89% of acquisitions being made by private investors and 11% institutional investors throughout 2016.