COVER STORY, OCTOBER 2011

POISED FOR GROWTH
Retail market is aided by health of San Antonio economy.
John Nelson

San Antonio is continuing to advance from the recession, and the retail market is showing trends indicative of growth with help from the local economy. An uptick in leasing and acquisitions has helped keep new construction to a minimum. Retailers are expanding into both existing properties and new developments. Albeit nowhere near pre-recession levels, construction is under way for some new developments and redevelopments around the city. San Antonio retail keeps improving and is poised for even more growth in the future.

MARKET INDICATORS

Commercial real estate is a derivative of the economy, and San Antonio has seen positive growth in diminishing vacancies, job gains and rising rents. The boom of the Eagle Ford Shale oil and gas development has helped boost the economy with job gains and more centralized spending.

“The Eagle Ford Shale doesn’t have a direct impact on the retail landscape,” says Keith McRee, vice president of NAI REOC San Antonio. “But there is a large tide of jobs being created in the oil and gas industry, which improves the quality of life.”

As of August, the unemployment rate in San Antonio is 7.8 percent, according to the U.S. Department of Labor. The rate is slightly higher than the 7.5 percent rate in August 2010, but it is trending downward from the 8.1 percent rate in June 2011.

Expanding retailers contributed 5,800 new workers in the first quarter of this year, according to Marcus & Millichap’s retail market report. The report projects that 27,000 people will be hired for all of 2011, compared to the reported 7,200 jobs added in 2010. During the past year, retail sales have gone up 5.2 percent, which is trending upward from the 3.2 percent drop the year before. A good economy is an incubator for retail market growth, and the job gains and decreasing unemployment are indicative that the retail market has room to prosper.

Vacancy rates, like unemployment, are also trending downward, according to NAI REOC’s retail report. This is due to the lull in new construction coupled with an uptick in demand. Overall, vacancy is sitting at 13 percent, compared to 14.1 percent at this time last year. There has been 223,787 square feet of positive absorption year to date, which is significantly up from 27,088 square feet of positive absorption year to date at this time last year.

Like most of the country, vacancy is trending lower for properties in demand. Regional malls have an 8.5 percent vacancy compared to 10.3 percent last year, and power centers are at 8.1 percent vacancy compared to 9.2 percent last year.

“We’ve experienced store closings, of course, like every market,” says Michael Schoenbrun, senior vice president and city partner for Cencor Realty Services’ San Antonio office. “But San Antonio has a pretty good track record of backfilling vacant spaces.”

On the other hand, there is 11.4 percent vacancy in community centers, 17.8 percent in neighborhood centers and 19.5 percent in strip centers. These properties are in less demand, but they are also up from this time last year. Vacancy was at 12.3 percent in community centers, 18.7 percent in neighborhood centers and 19.9 percent in strip centers.

Rental rates are on the rise in San Antonio as well, according to NAI. On average, rental rates are up from last year from $17.81 per square foot to $18.21 per square foot. Marcus & Millichap is reporting that rental rates are trending downward slightly, but the report projects that property owners will answer the rise in tenant demand with raising rents 1.4 percent.

Tenant improvement costs are averaging 12.8 percent of asking rents in order for owners to land tenants in their developments. For properties in demand, landlords are gaining leverage in determining rental rates, but tenants have the upper hand with properties not in high demand.

“I’d say it’s a tenant’s market right now,” says Kay Lewis, an associate with Retail Solutions in San Antonio. “If you can’t negotiate a deal with me at my center then there’s a center down the street. It’s a buyer’s market for mom and pop shops not worried about location.”

Job gains are rising, vacancy is trending downward and rents are trending upward, all of which is great news for San Antonio’s retail market, there are some developments and redevelopments that have either recently come online or are in the pipeline even though there is an overall lull in construction.

NEW DEVELOPMENTS/REDEVELOPMENTS

The San Antonio retail market is on track to add more than 400,000 square feet of retail space in 2011, according to The Weitzman Group. Marcus & Millichap projects that 530,000 square feet will be delivered by year-end, down from last year’s total of 551,000 square feet. In any event, several developments have either come online or are scheduled to open in the near future.

“There’s some good indicators on the horizon with some new developments,” says McRee. “It shows that there is demand from users for new products out there.”

The most notable retailer in the market right now is H-E-B with a total of four new San Antonio stores. These include an 88,000-square-foot location at 5910 Babcock that opened in March, a 103,000-square-foot H-E-B Plus! location at Marbach Road and Loop 410, a new 112,000-square-foot H-E-B Plus! store that opened in Bulverde at Texas 46 W. and Hwy. 281 and a superformat H-E-B Plus! and 29,000 square feet of shop space that is slated to open in 2012 at Bandera Road and Loop 1604.

Eilan is a mixed-use property located at 17101 La Cantera Parkway in San Antonio. The property is slated to deliver approximately 60,000 square feet of retail space before the end of the year.

Developments opening this year include Eilan, a mixed-use property located at 17101 La Cantera Pkwy. The property is slated to deliver approximately 60,000 square feet of retail space before the end of the year. The property includes office space that opened in 2010 and a boutique hotel under the Starwood brand that is slated for a November opening. Phase I of Dominion Ridge, a 50,000-square-foot mixed-use development located at the northwest corner of Interstate 10 and Dominion Drive, is slated to open this year with a freestanding CVS/pharmacy location spanning 12,900 square feet and a 4,264-square-foot Chase Bank location. Dominion Ridge is will house retail, office and medical space.

Additionally, Phase I of City Base West, located at Southeast Military Drive and South New Braunfels Avenue, is expected to open this year. The first phase will feature 120,000 square feet of retail space with tenants like Texas Roadhouse and Zios Italian Kitchen. A movie theater is slated to open there in the first half of 2012.

There are also developments that have just recently been announced or broken ground slated to open next year. DDR’s Terrell Plaza is a 243,098-square-foot redevelopment located at Mt. Calvary Drive and Austin Highway with a new 138,000-square-foot Target, a 29,604-square-foot Big Lots and 75,000 square feet of additional retail space. A 35,000-square-foot Whole Foods is being developed at The Vineyard, located at Loop 1604 and Blanco Road.

Developments in San Antonio have been at a lull, but dirt is still moving in the retail sector. Developers are having a hard time justifying new construction in this economy so companies are making the most of it by leasing and acquiring space.

ACQUISITIONS/LEASING

San Antonio has seen a slight increase in single-tenant and multi-tenant property acquisitions in recent months, according to Marcus and Millichap. Quarry Village, a mixed-use property featuring 70,785 square feet of retail and the 280-unit Artessa apartment building, has been purchased recently by Crow Holdings Capital Partners. Quarry Village’s tenants include New Balance, Starbucks, Jamba Juice, Clear Communications and Urban Taco.

Also, Dunhill Partners has purchased the 139,568 square foot Arbor Park from A&B Properties. Austin-based World Class Capital has kept busy by acquiring the 135,354-square-foot Westpark Plaza, the 69,875-square-foot Thousand Oaks Center and the 14,000-square-foot Ciel Plaza.

Acquisitions are on the uptick but it’s at a much more conservative pace than leasing.

“Leasing activity is definitely up, it started a year ago and everyone was wondering if it was only going to go through the end of the year,” says McRee. “But it has gradually increased.”

Adds Schoenbrun, “Leasing is running stronger than last year, and in some categories, like restaurants, it’s hard to find second-generation space in key submarkets.”

The Village at Stone Oak has added a 10,228-square-foot Parmida location.

Recent leasing transactions include JoAnn Fabric & Crafts leasing 25,000 square feet in Bandera Pointe, PetSmart leasing 24,863 square feet in Windsor Park Centre, Baskins Western Wear leasing 12,500 square feet in the Forum at Olympia Parkway, La Michoachina leasing 12,130 square feet in the Heritage Square Shopping Center, Ace Mart leasing 12,000 square feet in The Village at Ingram Park and Parmida leasing 10,228 square feet at The Village at Stone Oak.

Other expanding retailers include Staples, CVS/pharmacy, Ross Dress For Less, the Disney Store, Cheddar’s, Franco’s & Naples Italian Restaurant & Lounge, Chase Bank, Myron’s Steakhouse, Longhorn Steakhouse, Olive Garden, Logan’s Roadhouse, McDonald’s, Starbucks, Steak n Shake, Grimaldi’s Pizzeria, BRIO Tuscan Grille, Furr’s Fresh Buffet and Copeland’s of New Orleans.

Some merchants like Lack’s Furniture Store and Borders Books and Music have left the market with sizeable stores. Luckily there is a strong demand for most of the vacated properties, and retailers like Roomstore are already absorbing the spaces.

OUTLOOK

San Antonio’s economy is in good shape and indicators are showing that the retail market is making steady strides to get back to where it was pre-recession. The growth of the overall job market coupled with more spending in the retail market bode well for retail developments.

“A year from now, there will be new construction being developed and retailers will want to be around them,” says McRee. “I think that over the next 12 months we’ll see gradual improvement.”

With vacancy trending downward and leasing and investment sales trending upward, San Antonio’s retail market is in a good position to make steady improvement.


©2011 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.




Search Property Listings


Requirements for
News Sections



Snapshots


Editorial Calendar


Today's Real Estate News