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The Raub Report January 2014

January 10, 2014

It’s the turn of the year — time for reflection on the past year and looking forward to what will be.  In my niche of commercial real estate in San Antonio, the year 2013 was a pretty good year as we have adjusted to the New Normal.  Occupancies increased in all sectors of commercial real estate and rents edged upward.  So far, only multi-family has seen a surge in construction in the past few years, but new units are being absorbed very well and occupancies have remained steady in the 94% range, about as high as it gets considering normal monthly turn over in rental units.

Some new office building construction is taking place for expansions of local companies.  For example, Pape-Dawson’s new 65,000 square foot headquarters on Loop 410 at West Ave.  It will soon be accompanied by the construction of Bank of San Antonio’s headquarters next door.  One new spec project is Stream Realty’s 126,000 square foot building going up at Loop 1604 and Lockhill Selma. Another spec project on Loop 1604 will be R.L. Worth’s third building at Heritage Oaks of 192,000 square feet.

On the industrial front, Carrier Air Conditioning will be starting a 1,000,000 square foot distribution center on 135 acres on Applewhite Road across from Toyota.  Spec industrial is not in the cards yet.  Just like retail and office, they all need much higher rents than what is currently achievable in order to justify the expense of new construction.  Result: we will not see new construction relieve the high occupancy levels until current rents go up substantially.  Only national tenants expanding in San Antonio can afford new construction.  Current local tenants will be squeezed by higher rents and taking Class B space that is less expensive but somewhat obsolete and in less desirable locations.

CRE is driven by job growth and that wasn’t stellar for San Antonio in 2013.  We edged along at about 1% growth, when 2% (18,000 net new jobs) is a reasonable target.   Some of this is due to a reduction in government jobs.  Also, the big job growth generators of the past few years – Ft Sam’s San Antonio Military Medical Center and then the Eagle Ford Energy companies – are already absorbed here and not increasing any further.  Health care is one of our major economic drivers but it has been overwhelmed with Uncertainty with respect to the effects of ObamaCare.   Good News though, unemployment has now fallen to 6% in November, but that is up from 5.8% in August.  Austin is down to 5.2%, best in Texas.

The oil and gas boom based on Fracking has added $1,200 per year to Texas household disposal income.  Did you know – Texas now produces 2.7 million barrels of oil a day, one third of the 7.8 million in all of the U.S.  And in 2014 the US will become the world’s largest oil producer overtaking Saudi Arabia and Russia.  Texas alone has surpassed Venezuela, and Kuwait.  God Blessed Texas!

Have a Very Prosperous New Year!