San Antonio Nears a Full Economic Recovery
San Antonio has now nearly recovered to the economic level where we were prior to the pandemic with September’s unemployment rate down to 4.5%, according to the Texas Workforce Commission. We were actually near 3% in early 2020, which is pretty much full employment and we could be back at that point in the coming year, providing the supply chain issues don’t dampen hiring. In September, Austin is now down to 3.5%. Our Gross Metropolitan Product actually passed our pre-pandemic peak, according to Oxford Economics, and has grown 1% since Q4 2019. NAI Partners Research says, “GMP is expected to grow 2.3% per year, on average, over the next five years to 2027, which is above the U.S. expected growth of 2%.” This will keep our commercial real estate motor humming along nicely; good for leasing and construction.
San Antonio Rankings
San Antonio is listed by Urban Land Institute as 21st out of ‘best overall prospects’ for commercial real estate in the U.S. for the year ahead. That’s down from 12th last year. Austin came in #4, and in the top spot is Nashville. We did earn an 8th place in home building prospects. We are considered to be large and diverse, yet affordable and rebounding more quickly from the pandemic than other areas. Interestingly in ULI’s Buy/Hold/Sell rankings, S.A. ranked #1 for hotel acquisitions. I have also heard that lenders are actually interested in this sector, which is surprising because hospitality was hammered by the past pandemic lock downs and now the current labor shortages. We then ranked #3 for retail properties, #8 for multi-family and #12 for industrial properties; all solid scores. Industrial properties continue to experience strong growth. Currently, we are seeing more 100,000 to 300,000 square foot buildings started, along the I-35 North corridor and I-10 East. Rumors circle for 600,000 SF projects. Generally, new industrial construction has now become larger floor plates than in the past. Also, industrial buildings tend to be either, owner-built and occupied or are fully spec; pre-leasing tends to be difficult.
Office leasing is doing well, thankfully, and maybe a little surprising. In the third quarter, leasing demand increased 45%, according to NAI. San Antonio’s profile of slow-and-steady growth continues, just fluctuating between 9-11% vacancy rates for the past ten years, and without the ups and downs of other Texas markets. One factor that we have avoided is large amounts of sub-lease space weighing down new lease growth.
Commercial real estate construction is doing well with 1.2-million SF of office buildings under construction (NAI) and 925,000 SF of retail space (Foresite CRE). We think that lenders are maintaining strict underwriting standards including strong pre-leasing requirements.
Manufacturing, Tesla and the Future of Transportation
Then, Tesla has moved its corporate HQ to Austin. Not surprising considering Elon Musk’s long feud with the State of California. Maybe this will bring more manufacturing to our area, as companies cluster near the Giga truck factory under construction in Austin, Navistar’s nearly completed plant in San Antonio and, of course, the Tundra plant here. Ever heard of The Boring Company? This is Elon’s underground tube company, now HQ’d in Austin. Wouldn’t zero-emissions “Tesla’s in Tunnels” be a cool solution to I-35 traffic in the Austin-San Antonio Corridor?