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Net absorption in the San Antonio retail market stood at negative 177,000 sq. ft. in the first quarter—down from positive 169,000 sq. ft.


EXECUTIVE SUMMARY

 

Occupancy at 94.7%

Net absorption in the San Antonio retail market stood at negative 177,000 sq. ft. in the first quarter—down from positive 169,000 sq. ft. in Q4 2019—while leasing activity included 632,000 sq. ft. of signed deals. The overall occupancy rate decreased by 40 basis points quarter-over-quarter, and 50 basis points year-over-year at 94.7%. The retail market saw overall average asking rates increase by $0.22 per sq. ft. quarter-over-quarter to finish at $16.41 on a triple-net basis. A year ago, average rates were at $15.45, representing a 6.2% increase.

 

Economic indicators

The Federal Reserve Bank of Dallas reported that San Antonio’s economy grew at a stable pace in February. The San Antonio Business-Cycle Index continued to expand above its long-term average. The unemployment rate declined slightly, and job growth remained steady at a healthy pace over the three months through February. Wages continued to climb, and home sales prices fell. While most data have not captured the impact of the coronavirus outbreak, recent stock prices of San Antonio-based companies show moderate recoveries following sharp declines in February and early March.


MARKET OVERVIEW

 

Supply and demand

The San Antonio retail market went into negative net absorption of -177,000 sq. ft. and delivered 337,000 sq. ft. during Q1 2020. Of the new construction delivered so far in 2020, 80% has been leased, and of the 1.1 million sq. ft. still in the pipeline, about half has been spoken for. Strong population growth and above-average job growth had all underscored San Antonio’s solid fundamentals. The new rooftops and jobs have driven demand for retail, which has led to an occupancy rate at or above 94.0% for the last five years, prior to the coronavirus (COVID-19) pandemic.

 

Investment sales

Real Capital Analytics data reports quarterly retail sales volume for Q1 2020 in the Greater San Antonio area at $203.5 million, an increase compared to this time last year at $149.0 million. Most of the capital composition for buyers in 2020 was made up of 96.4% private investors. For sellers, the majority was 74.5% cross-border (a transaction is defined as cross-border if the buyer or major capital partner is not headquartered in the same country where the property is located), and 23.2% private investors.

 

Leasing activity

Leasing activity remained steady during the first quarter, with a total of 632,000 sq. ft. leased in the San Antonio market—compared to 619,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had Northwest leading the way with 188,399 sq. ft. (30%); and North Central in second at 182,053 sq. ft. (29%). The largest lease signing occurring in Q1 2020 was EVO Entertainment signing 80,000 sq. ft. in a new movie theater with a scheduled delivery date of January 2021 in the Far West Submarket. The project plans to house 10 dine-in auditoriums, each with 4K laser projection screens and heated recliners. Two of the auditoriums will feature the EVX enhanced viewing experience, with 80-foot curved screens and Dolby Atmos sound.

 

Average asking rents

The San Antonio retail overall triple-net average rates are at $16.41 per sq. ft., an increase of $0.96 from $15.45 a year ago. Rent growth has varied across San Antonio submarkets, and with additional space likely coming available in San Antonio, tenants may have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. Disruptions from COVID-19 will also have an impact on commercial real estate landlords and tenants as difficult decisions are made to adapt to these sudden changes. Many small tenants—particularly retail tenants—have seen revenue drop 50% to 100% in some cases and simply can’t pay their rent. For companies that qualify, the CARES Act recently passed by Congress provides at least two months’ rent and wage relief for companies of 500 employees or less; landlords—many of which are also struggling, as they receive multiple rent relief requests while still having to pay property expenses and mortgage payments— expect tenants who are able to do so to apply for these funds in order to pay rent.

 

San Antonio March area home sales report moderate climb

Total home sales showed modest increases in March with sales rising 4% for a total of 3,013 in the San Antonio area. This is according to the Multiple Listing Service Report from the San Antonio Board of REALTORS® (SABOR) which reports on all areas contained within the MLS. Both the average and median sales prices climbed 6%, with the average price reported at $277,256 and the median at $240,000. Months of inventory continued to favor sellers with only 3.2 months available. Heading into April, the month ended with 2,917 sales still pending. “We know many buyers and sellers might be hesitant to get into the market amidst coronavirus concerns, but with so many virtual options available, they are still able to tour properties and meet with their REALTOR® to achieve their homeownership goals,” said Kim Bragman, SABOR’s 2020 Chairman of the Board.

 

The coronavirus outbreak

With a considerable amount of the economic growth of the San Antonio metro tied to the leisure and hospitality job sector, growth will likely suffer across the Alamo City. The path both the San Antonio economy and its office market sector take will depend on how widely the virus spreads and how long social distancing needs to be maintained. Prior to the coronavirus outbreak, San Antonio had strong economic momentum, and the current statistics largely reflect the environment before the pandemic.


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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