May 23, 2016
10 years ago, San Antonio was a sleeper city of Texas, often overshadowed and outcompeted by its more well known neighbors, but recently the data has shown that Alamo city has begun to blossom into one of the most desirable locations in the lone star state. San Antonio’s growth, in terms of both population and economy, are driving a strong surge in the local commercial real estate (CRE) market. Additionally, the CRE industry is seeing a national trend toward investment and development in rising secondary markets such as San Antonio. In fact, the 2016 Report by PwC and ULI, predicts that secondary markets will only continue to get stronger. According to PwC, second tier markets that are emerging as “18 hour cities” are predicted to be the number one trend in 2016. San Antonio is showing all the signs of a rising 18 hour city, resulting in growing confidence in potential CRE investment and development.
So what supports this trend and interest in San Antonio? To start, the strengthening U.S. macroeconomic performance is bolstering absorption and improving occupancy in the majority of American real estate markets. In 2015, the US commercial real estate sector grew at moderate pace and that should continue well into 2016. Vacancy rates are down across the retail, industrial, and office sectors with office vacancies hitting their lowest point since 2008, according to CBRE Group. Furthermore, rental prices are steadily being driven up by an increase in demand. The commercial real estate market should continue to make gains and transaction volume is set to increase at a steady pace. The possibility that prices may top out in high end markets sets the stage for markets like San Antonio to thrive.
At a local level, San Antonio is showing all the driving indicators of safe investment and superior yields. The San Antonio metro growth rate has climbed nonstop for the last five years. Last year, the San Antonio metro region had the sixth-fastest growth rate in the country among metros with a population of 1 million or more. The population grew 1.9 percent from 2010 to 2011, and has grown slightly more than 2 percent every year since. In addition, San Antonio has shown stable job growth at 3.6 percent, the same as 2014. That percentage translated to net growth of 35,000 jobs in the metropolitan area. San Antonio’s diverse economic base also contributes to the city’s growing appeal for those looking to invest and develop in the lone star state. Many top employers, including Toyota, Caterpillar, and Microsoft, have chosen to set up shop in San Antonio. This adds to the city’s sizable base of existing employers. Clear Channel, Valero, and USAA are the nation’s largest radio company, largest refiner, and one of its largest insurers, and they all originated in San Antonio. San Antonio is also not heavily dependent on the price of oil; companies like Valero and NuStar, headquartered in San Antonio, should continue to remain at pace.
In terms of economic stability, San Antonio not only offers a safe bet on private sector but also offers up attractive public sector diversity. San Antonio presents ample opportunities and bond packages for companies looking for a secure foothold in the public sector. With the expansion of the bases at Fort Sam Houston and Lackland, the city has seen substantial gain in the number of military jobs. Overall, San Antonio’s growth is extremely well rounded, avoiding the over dependence on one industry that eventually spells slowdowns for similar fast growing cities.
San Antonio is also benefiting from a i35 corridor connection to Austin, which is in the midst of its own tech boom. Investors and businesses are looking to San Antonio’s increased connection to Austin as a budding opportunity. Until recently, San Antonio has been the quiet neighbor next to the exploding Austin market.
Many experts are drawing parallels between San Antonio-Austin and Dallas-Fort Worth. It’s the tale of two separate mid-sized cities that were connected to make the huge metroplex we know today. We will likely see a similar transformation take place for San Antonio and Austin. One can look to the development trends between the two metros to get a glimpse into the future of their connectivity. The fast growing college town of San Marcos that bridges San Antonio and Austin has approximately 855K SF under construction and has consistently ranked among the fastest growing US cities the past few years. The growing development in cities between San Antonio and Austin is just one example that confirms the increased momentum in the i35 corridor.
As the second largest city in Texas and the seventh largest city in the United States, San Antonio is a hotbed of rich history and growing opportunity for young professionals, businesses, and investors. San Antonio’s local charm and business friendly climate will continue to drive its economic growth and desirability.
Expect to see a wave of new development activity in the Alamo city driven by millennial in-migration (#1 in US according to Forbes), especially as businesses expand or relocate. All in all, Texas’ surge shows no sign of slowing down, and San Antonio will continue to benefit from the growth. Looking ahead, the commercial real estate market in San Antonio has several good years on the horizon. Be sure to keep your eyes out for San Antonio, the Lone Star State’s next boom market.
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