San Antonio | 2009 Market Outlook

Population and Job Growth Driving Demand for Retail Space in San Antonio

Employers in San Antonio will trim payrolls this year, although deep cuts are not expected. The metro’s growing population, which is anticipated to increase by more than 200,000 individuals over the next five years, should support job creation over the long term. While the recession is slowing vacation spending nationally, the economies of the major Texas markets have remained comparatively strong, with tourist attractions in San Antonio, including Six Flags Fiesta Texas, SeaWorld San Antonio and the River Walk, popular with the state’s residents. Continued tourism should mitigate the decline in retail sales, supporting tenants near major destinations in 2009. On the supply side, retail construction will begin to slow during the second half of the year as national chains delay expansion plans. In fact, the planning pipeline recently reached the lowest level in more than three years, indicating easing supply-side pressure. Nonetheless, projects that are already under way will face longer lease-up times and offer significant concessions to attract tenants.

Investor sentiment in San Antonio will remain positive during 2009, though activity among regional buyers may decline. As such, sellers may have to realign pricing expectations to compete with rising cap rates in the state’s larger metros. Local investors are expected to remain prominent in San Antonio, targeting stabilized multi-tenant assets where cap rates are in the high-7 percent to low-8 percent range. Single-tenant properties were trading with cap rates in the low- to mid-7 percent range at the end of 2008. Further prospects will be created by developers divesting assets on outlying pad sites, generating competitive bids from exchange buyers who are seeking to place capital during the economic downturn.

2009 Market Outlook
• 2009 NRI Rank: 24, Up 9 Places. San Antonio rose nine spots in the NRI this year due to limited job losses and a modest decline in retail sales.

• Employment Forecast: After adding 14,800 positions in 2008, employers are projected to trim payrolls 0.4 percent this year, or by 3,300 jobs.

• Construction Forecast: Retail development will total 2.5 million square feet in 2009, down from 4 million square feet last year. Completions will account for a 3.3 percent increase in retail stock.

• Vacancy Forecast: Despite easing construction, vacancy is expected to finish the year at 10.4 percent, up 140 basis points from 2008, when the rate rose 40 basis points.

• Rent Forecast: Owners are forecast to increase concessions to hasten the absorption of new space. Asking rents are projected to end 2009 at $14.49 per square foot while effective rents slip to $12.84 per square foot, declines of 2.9 percent and 3.7 percent, respectively.

• Investment Forecast: Buyers with long-term holding strategies may want to consider properties in the Northeast submarket, where the recent relocation of Rackspace’s headquarters and the consolidation of the military’s medical training facilities will add thousands of new jobs over the next three years.