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Raub Report May 2015

May 19, 2015

The activity level in commercial real estate in Q1 2015 picked up from a more subdued Q4 of 2014 and is currently very strong and healthy. The “oil shock” of December, scared a lot of Texans, as I wrote in February, but now we are seeing that the impact locally is not going to be significant. S.A. has only a 3% exposure to the Energy industry. Actually, Sequestration was a bigger hit a few years ago and we have survived and thrived.

Now, all of the businesses that need to expand and relocate are moving forward with their plans. Banks are accommodative as long as the Borrower has a very solid business plan, strong balance sheet and good cash flow. Others need not apply.

Job Growth is the key component to economic vitality of every city and, consequently, it becomes an essential component to the value of commercial real estate. According to Myers Research, job growth in the San Antonio-New Braunfels Metro Area in 2014 was 20,200, and the projection for 2015 is between 22,000 and 30,000, about 3% of our 1-million job base. Our unemployment rate of 3.7% is better than the U.S. average of 5.5% according to the Express-News.

We often taut San Antonio as the 7th largest city within the U.S. That is technically correct, but not helpful, as it compares the population with the city limits of one metropolis to another. The more enlightening comparison takes in all of the surrounding suburbs that act as a single integrated metropolitan area. This more helpful measure is called the Metropolitan Statistical Area (MSA), which takes into account for San Antonio all of the 6 county region around the central city.

Did you know that cities can be measured by Gross Domestic Product (GDP) just like countries? This is a helpful gauge of the real economic power of a region. Here is why that is important: the way to compare one city to another is to compare the various cities’ GDP – a measure of the region’s real economic productivity and power.

Where then does San Antonio rank? 35th nationally. This is a more telling indicator than the simple population of the central city, where we rank 7th.

The Alamo City has always seen itself as a bit larger than the Capital City but think again. Austin’s GDP has actually exceeded San Antonio’s for some time. In 2014 the GDP of our fair city was $96-billion having a growth trend after the financial crash of 2008 of 3.85%. However, compare this to Austin with a 2014 GDP of nearly $104-billion, 8% larger than San Antonio. Also, Austin is growing at a faster rate of over 4% per year, so it will continue to pull further ahead of San Antonio.

And where does Austin rank by GDP? 33rd. Guess which City / MSA falls in between Austin at 33 and San Antonio at 35? Nashville. Now, if we combine Austin and San Antonio into a metropolitan area of the entire Austin –San Antonio Corridor, then the two cities combine into one region that ranks in the top fifteen, falling just above San Diego and just below Phoenix.

Another point of comparison: San Antonio absorbed 8,000 new apartment units in 2014 without much problem. Our rental rates remain strong and occupancies are good. We will see slowing in delivery of apartment units in 2016, as developers and lenders pull in the reins so as not to get ahead of our growth curve.

Now compare this to Austin which easily absorbed 14,000 new apartment units in 2014, and the demand is so strong that developers cannot keep pace. Is this too strong and likely to be reversed in an overbuilt market? No one can say. Austin is insulated from the downturn in oil as it has very little energy industry exposure. Of course, it is heavily invested in the technology arena, but that shows no signs of letting up. And the urban lifestyle of Austin is the envy of San Antonio. Our more family oriented city makes it harder to recruit younger entrepreneurs and new technology businesses.

The Austin – San Antonio Corridor will continue to fill in, with New Braunfels as San Antonio’s northeast suburb and Buda-Kyle-San Marcos forming up South Austin. In fact, one recent front page article that appeared in the San Antonio Express News as well as the Austin Statesman, showed that the fastest growing counties in the country included Hays County at Number Four and Comal County at Number Five. So we are anchoring one of the fastest growing regions in the country; it is just that the other end is growing faster. That’s not so bad.

No one questions that the personalities of San Antonio and Austin are so very different. Everyone laughs and agrees with the bumper sticker that says “Keep Austin Weird” but a bumper sticker that said, “Keep San Antonio weird” would make no sense. We may be less “hip” but we are more stable and family oriented than our neighbor. And I think this diversity of culture is healthy – there is something for everyone here!

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