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Raub Report: Fall 2018 Market Analysis

November 7, 2018

So often we hear that we are in such an “uncertain time”. Really? Please name a period in history when we were not in an uncertain time, and then how long did it last? We seem to have forgotten the time-honored maxim, “Nothing is certain but death and taxes.” Change is the most basic element of human life, from our own aging process and those of our families, to constant change in the business world. We all strive to find ways to grow our businesses, because they are valued based on the growth of our profits from year to year. And our competitors are also eager to find new ways to grow and that will impact our own business. Thus innovation is the essence of American business. And now we have accelerated that change by seeking new “disruptors” that challenge the basic fabric of our lives. The computer, the internet, the iphone, the electric car, and more. It is a very exciting time to be alive, and a great time to be in San Antonio, U.S.A. And we must embrace change, or it will run us over. And thus, Uncertainty is our constant campanion.

Right now, I see local businesses growing and solid job creation. Interest rates are rising and that is cooling the hot housing market. Affordability is the other big factor cooling single family and multi-family housing. Our downtown is on fire, unseen since the 1970’s and that will continue for the next decade, at least. Retail has seen its metamorphasis in adopting to eCommerce. Retail sales figures are growing very strongly, except for those that did not survive, like Sears, Mattress Firm, Rue 21, and others. Now the online retailers are opening actual stores. They have seen that their online sales explode when they compliment them with the bricks ‘n mortar locations. And then this has lead to a rapid expansion in the once staid industrial sector, which is needed to fulfill the last mile of the online deliveries. Offices are changing with the densification of employee space, a’la WeWork and Geekdom. Companies have found that up-to-date, highly amenitzed spaces are necessary as recruitment tools for Millenials, who put great value on trendy interiors, walkability and sustainability. Change, Disruption, Uncertainty!

Now let’s look even further into the future to the challenges we must face, as they will not go away. A 3.2% San Antonio Unemployment Rate! Hooray! But in the U.S. we have 7-million unfilled positions waiting for someone qualified to come along. If the 3.2% “unemployed” and some of the “under-employed” could or would fill those jobs we would be at truly full employment. We are at the point that without more workers we can’t grow. The Illegal Alien problem needs to be solved by Congress and fast.

Another major concern is government pension liabilites. This is sinking Chicago and sunk Detriot. Greenstreet Advisors tells us that unfunded goverment pension liabilities have quintupled over the last decade. San Antonio’s police and firemen’s pensions will swallow the entire city budget in ten years, with a $2.3-billion short fall. We do have a very strong financial position, earning the AAA bond rating. This election’s outcome may negatively impact that rating, which would raise our debt costs by nearly $2-million per year. This uncertainty will materially influence our business climate and commercial real estate. The biggest threat, though, is the explosion of property tax assessed values, balloning 30% to 100% in the past three years. Some of this goes to the city, most to schools to replace the decreased funding from the State.

However, another issue is that San Antonio’s tax rate is one of the highest of metropolitan cities in the U.S.: 7 out of 71. Combined with the exploding tax assessments, these are beginning to surpress apartment, self-storage and other development, as developers can make better money in other cities, but not here. Taxes have a hugely negative affect on small businesses, who can’t afford the higher rents. San Antonio needs to get our legislative leaders to tackle this issue in Austin, as local officials will not make any changes. So, I find myself back where I started — the certainty of death and taxes.