In the constantly changing realm of retail markets, San Antonio, Texas, emerges as a symbol of enduring strength and promise. Exploring the vibrant dynamics of this market is essential, especially in understanding its response to the widespread economic downturn affecting numerous areas. Amidst these adversities, the retail sector in San Antonio has demonstrated exceptional resilience and flexibility. This has positioned the city as a key destination for strategic partners and real estate private equity investors.
Page Contents
A Snapshot of Resilience and Growth
San Antonio’s retail market has been weathering the ominous clouds of the broader economic slowdown fairly well thus far. As we move into the balance of 2023, a sense of cautious optimism permeates the air. Key metrics such as rent growth, occupancy, and absorption as a share of inventory are not just holding steady but outpacing the national
benchmark, according to CoStar. This is a clear indicator that retail in San Antonio is on firm footing.
Over the past 12 months, the market has seen an impressive influx of new space, with 1.6 million square feet brought to market. This figure is one of the highest of any metro in the nation, underscoring San Antonio’s burgeoning appeal. The market swiftly absorbed most of this space over the past year. The aggregate absorption outpaced deliveries on a net basis, signaling a persistent demand from retailers for a physical presence in one of the nation’s fastest-growing metros.
Steady Leasing and Low Vacancies: A Sign of Strength
Persistent Leasing Activity in South Central Texas
In South Central Texas, leasing activity in the retail sector remains robust, reflecting the region’s economic vitality as of the end of the second quarter. Vacancies stand at a remarkably low 3.5%, a figure that is impressive in isolation and when compared historically. This low vacancy rate, the second-lowest among Texas’s four largest metro areas, underscores the strength and appeal of San Antonio’s retail market.
Retailers’ Keen Interest in San Antonio’s Suburbs
Retailers are showing a marked eagerness to establish their presence in the greater San Antonio area, particularly in its rapidly expanding suburbs. This trend highlights the shifting focus of retail growth, moving away from urban centers to suburban locales where there is a burgeoning consumer base.
Challenges in the Mall Sector
Despite these positive indicators, challenges persist, particularly in the mall sector. Moring a national trend, malls in San Antonio continue to struggle with above-average vacancy rates. This issue is most acute along the Loop 410 and 1604 corridors, home to the majority of the region’s under-occupied malls. Many of these malls need clearer plans for redevelopment or repositioning in 2023, posing a significant concern for the retail landscape in these areas.
The Impact of Median Household Income
Another headwind facing the San Antonio retail market is the median household income. Although the metro is experiencing relatively rapid wage growth, its income figures still lag behind those of its peers. This economic factor could influence consumer behavior, particularly in a market where e-commerce presents a competitive alternative. Price-conscious consumers may opt for online shopping if they find brick-and-mortar retail options too expensive.
E-Commerce and Consumer Behavior
The looming presence of e-commerce in San Antonio’s retail sector cannot be understated. As consumers increasingly return to in-person shopping, online options’ convenience and often lower prices continue to exert significant influence. This trend is particularly relevant in market segments where price sensitivity is a key factor in purchasing decisions.
Population Growth as a Mitigating Factor
However, it’s important to note that growing cities like San Antonio have historically been able to offset some of these challenges through consistent population growth. Even as consumers may spend less in physical stores, the addition of new residents and households has helped sustain the retail market. In recent years, this demographic trend has been a buoying force for the region’s retail prospects.
Resilience and Growth Amid Economic Challenges
Economic Resilience Fuels Retail Growth
San Antonio’s retail landscape is a testament to the resilience of its local economy, one of the most robust in the country by various measures. Despite the tumultuous macroeconomic conditions experienced over the past year, the retail sector in San Antonio has seen significant benefits. This is particularly evident in the performance of retail landlords in the area.
Rising Rents Amidst Macroeconomic Turbulence
Over the past 12 months, retail rents in San Antonio have risen by 4.7%, a remarkable feat given the broader economic challenges. This increase is not limited to a specific segment of the retail market; both malls and general retail spaces have experienced some of the highest levels of year-over-year rent growth in early 2023. This growth has had a positive effect across the board, lifting the entire retail sector.
Long-Term Rent Growth Outpaces National Average
When viewed over a longer horizon, the city’s cumulative rent growth over five years stands at 17.6%. This rate is impressive in its own right and outperforms the national benchmark by several basis points. Such a trend underscores the strength and potential of the retail market in San Antonio.
Population Growth Driving Retail Demand
A key driver of this optimistic outlook for San Antonio’s retail market is the city and metro area’s continued ability to attract new residents. The influx of people relocating to the Alamo City has traditionally translated into robust demand for brick-and-mortar retail. San Antonio ranks as the fastest-growing city proper and the third-fastest-growing large metro area in the United States, trailing only Austin and Phoenix, according to the most recent Census Bureau population estimates.
Steady Performance Despite National Headwinds
While national economic headwinds have cast a shadow of uncertainty over many regions, San Antonio’s retail market remains steady, even showing signs of potential overperformance. This resilience is a hallmark of the city’s retail sector, setting it apart in a challenging economic landscape.
Continued Growth on the Horizon
Given the high occupancy rates, large and geographically diverse population, and the robust job market in San Antonio, there is a strong likelihood that rents in the retail sector will continue to grow. The city’s ability to maintain its economic vitality amidst broader challenges positions it well for continued success in the retail market.
A Tale of Robust Sales and Strategic Acquisitions
High-Volume Retail Sales in Recent Years
San Antonio’s retail market has witnessed remarkable activity in terms of sales volume in the past few years, and last year marked the third-largest in the city’s history for estimated retail sales volume, with over $1.25 billion worth of assets changing hands. This follows an even more impressive performance the previous year, with sales volume nearing the $2 billion mark. These figures underscore the strength and attractiveness of the investment sales market in San Antonio between 2021 and 2022.
A Dip in Momentum
However, this momentum experienced a slowdown in late 2022 and early 2023. In the last quarter, general retail generated a relatively modest estimated transaction volume of $275 million, falling below the three-year average of $337 million per quarter. Although the current quarter may exceed the previous one, it likely won’t reach the 2020 to 2022 average.
Pricing Trends and Market Performance
In terms of pricing, San Antonio has demonstrated significant growth. The gap between the city and the national average has narrowed considerably over the past five years. This trend is a testament to the city’s ability to attract investors to its high-growth market, which often surpasses national rent growth, absorption, and occupancy benchmarks. Currently, the average market price among all retail sub-types in San Antonio stands at $260 per square foot, just $10 behind the national average.
Notable Transactions Highlighting Market Dynamics
One of the most significant recent transactions in San Antonio was the sale of The Shops at the Rim, a premier luxury shopping destination. Big V Property Group sold part of this asset to Austin-based Door Capital Partners. This 7,090-square-foot property, fully occupied at the time of sale, hosts tenants like Starbucks and GNC.
Big V’s involvement in San Antonio’s retail market continued further. They also acquired Alamo Ranch, a key shopping center in the city’s rapidly growing Far West Submarket. Located strategically along Loop 1604, this acquisition by the Charlotte, North Carolina-based group amounted to $104 million.
Growing Interest from Non-Local Investors
Large, non-local players have increasingly purchased a significant share of core properties in the San Antonio retail market. The sale of 812 S. Alamo is a notable example demonstrating this trend—Alamo in the Southtown district. Known as “Southtown Junction,” this property was acquired by Austin-based Ironwood Real Estate from San Antonio’s GrayStreet Partners. At the time of sale, the property was 92.5% occupied and featured a range of popular retailers and restaurants, drawing significant foot traffic to this vibrant area just south of the city’s central business district.
A Preferred Market for Developers
Sustained Popularity Among Retail Developers
San Antonio has long been a favored destination for retail developers, a trend that has continued into 2023. Over the past decade, the market has seen an impressive average of 1.7 million square feet of annual net deliveries, expanding its retail inventory by more than 10%. This growth outpaces other high-growth markets like Raleigh, Miami, and Denver, 
highlighting San Antonio’s appeal in the retail development sector.
Focus on Neighborhood Centers and Power Centers
The majority of these developments have been prototypical neighborhood centers, often anchored by grocery stores or large retail chains such as Target or Walmart. This trend reflects the consumer demand for convenience and accessibility in retail shopping. The recent addition of Floor & Decor’s 90,000-square-foot store in Northeast San Antonio is a testament to the continued success and consumer acceptance of power centers in the area.
San Antonio’s Standing in National Retail Construction
In the broader context of national retail construction, San Antonio ranks among the top 25 major markets for inventory currently under construction. This position is significant, indicating not just the city’s robust retail development but also providing insights into the state of retail development across the United States. Currently, less than 1% of San Antonio’s retail inventory is under construction, yet this still places the city ten basis points ahead of the national average.
The Impact of Capital Market Confidence
The future of retail construction, both in San Antonio and nationally, is closely tied to the confidence in capital markets. In the current climate, lenders are cautious about funding high levels of speculative retail construction despite the growth in residential areas. This caution is a reflection of the broader economic environment and is likely to influence the pace and volume of retail development in the near future.
Final Reflections
As we look ahead, San Antonio’s retail sector promises dynamic growth and potential. Its steady growth, impressive sales volumes, and strategic developments mark it as an appealing prospect for investors and developers. Despite facing challenges akin to the broader national retail landscape, the city’s distinct advantages, such as its expanding population and varied retail offerings, paint a promising future. Lumicre is your go-to resource for expert insights and tailored solutions for navigating this dynamic and potentially profitable market. Contact Lumicre for all your investment and development needs in this vibrant sector.