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Raub Report: Commercial Real Estate Occupancy Rates in San Antonio

August 15, 2019

Raub Report: Commercial Real Estate Occupancy Rates in San Antonio - Blog Image

How you doin’?” is our typical greeting, but let’s ask Commercial Real Estate that question. In San Antonio we are doing pretty well, thank you. Texas is leading the nation in population growth, growing at twice the rate of California and more then Florida and Colorado. San Antonio is right there with the other major cities, with an unemployment rate of only 2.8%. However, our growth peaked in 2014 and has been slowing since. Occupancies are strong; any overbuilding is minor and easily absorbed, and prices are strong. Let’s look at the sectors.

Multifamily is doing very well, with occupancies up to 91%, after a dip in 2017. Demand for units is higher than new supply, even though we have 6540 units under construction now. However, that demand is projected to slack off next year, so that occupancies may rise. Rent growth is solid at about 2% a year, the rate of inflation. Sales activity in apartments has been very strong for the past several years, and it is by far the most active sector, with volume more than 3 times any other sector. Expect that to slow down this year and next but remain strong.

Office space is doing well, with occupancies holding at around 90% but edging a bit lower because of the 1.6-million square feet of new construction. Fortunately, about half the new construction is pre-leased. The new office buildings along Broadway and near The Pearl only have a small amount of available space, even though they are not yet completed. The former Cavender Cadillac is being rebuilt as The Soto office building and the old San Antonio Light building is being totally re-done by GrayStreet Partners. Even more excitement downtown will come from several new hotels that are under construction. The CPS office buildings along the River Walk are now for sale and even the venerable Nix Hospital is being sold. The Nix will likely be converted to hotel, residential or office use, since it hasn’t been doing so well as a downtown hospital.

Retail occupancies are very high at 94.5% and lease rates are at all-time highs. Five centers that IRC leases and manages are at 100%, and one office building is 98% leased. In San Antonio there is 1.3-million square feet of space under construction and about 2/3rds of it is pre-leased. Sure, there have been bankruptcies like Sears, Payless Shoes, Agaci, and more store closings. But others are filling those spaces, like the old Central Park Sears being back filled by  Bed Bath and Beyond (not doing so hot itself), and TruFit. Free markets find a way to make the best out of someone else’s bad situation.

At this point in time, it appears that all asset classes of investments have gotten expensive – the stock and bond markets, gold, homes and certainly commercial real estate, making it hard for investors to get the kind of return on investment they expect. Of course, hoping for a collapse in asset values, would seem to be counter-productive. That is like praying for a hurricane in August, because that disaster is the only way we will get a little rain. Be careful of what you pray for – you may actually get it. So, I suggest that the way to find good value in commercial real estate investments is to understand what you really need from your investments, and recognize that those returns may not be as high as you might dream.

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