Market Update: San Antonio Industrial Development ‘On the Rise’

SAN ANTONIO (REOC San Antonio) – Developers and lenders have been reluctant to launch speculative industrial projects in San Antonio, says REOC San Antonio in its fourth quarter 2014 market report. But the firm said that could be about to change.

Three new buildings totaling more than 377,000 sf of industrial lease space were delivered to the northeast sector last quarter: Enterprise Industrial Park (315,362 sf), Tri-County 3 (39,884 sf) and Tri-County 4 (21,930 sf).

The market closed 2014 with a 7.2 percent vacancy rate, only slightly higher than where it was a year earlier despite the addition of new supply.

"Current availabilities are rather limited for companies looking to relocate or expand here in San Antonio,” said John Greg Turcotte, senior vice president and partner with REOC San Antonio. "But there are more projects moving through the development pipeline."

Nearly 550,000 sf of industrial space is currently under construction, led by the recent groundbreaking of Enterprise 2 (324,000 sf) in the northeast sector. The remaining projects are nearing completion and set to be delivered in the first quarter, including Thousand Oaks Business Park 4 (66,405 sf) in the north central sector and Alamo Ridge Business Park 1 & 2 (96,324 sf and 61,744 sf, respectively) in the northwest.

Among other warehouse projects set to break ground are Doerr Lane Industrial Park (213,864 sf) and Cornerstone Industrial Park 3 (145,000 sf), both in the northeast sector. Plans are also underway to demolish the former Cardell Cabinetry complex and redevelop the site with four separate warehouse buildings totaling more than half a million sf.

"Clearly, demand for industrial space remains strong even if gross leasing activity seems a little flat due to the lack of available space," Turcotte said.

The market had 36,237 sf of negative net absorption in the fourth quarter. Results for the year, however, remained positive with 505,802 sf of net gain in occupied space. Distribution warehouse properties had 387,986 sf of positive net absorption, outperforming the 117,816 sf registered in the service center/flex property type by a ratio of more than three to one.

The citywide vacancy rate was 7.2 percent, but distribution warehouse properties were at 5.8 percent. The service center/flex market closed the year with an 11.6 percent vacancy rate, down from 12.1 percent a year ago.

The citywide average quoted rental rate remained stable over the quarter at $7.76 per sf per year on a triple net basis, up $0.18 or 2.4 percent from a year ago. The cost of renting distribution warehouse space remained stable over the quarter at an average $5.74. The average cost of renting service center/flex space increased $0.09 to $9.35, an annual increase of less than 1 percent.