TEXAS SNAPSHOT, APRIL 2011

San Antonio

Hall

In a recent article, Newsweek magazine named San Antonio as one of the top 10 American cities best situated for the economic recovery. Amid a turbulent national economy, San Antonio has been able to sustain its momentum and weather the recession’s storm due to its diversified economy and a host of other factors including an expanding military platform and a strong influx of purchasing power from Mexico.

And there is more good news. Newsweek also identified the “Texaplex” — formed by the cities of San Antonio, Austin, Houston and Dallas — as the No. 1 destination for job-seeking Americans. Citing the state’s pro-business attitude and favorable cost of doing business, the magazine pointed out that Texas has more Fortune 500 companies than any other state in the country.

The oldest of the four Texaplex cities, San Antonio has a smaller base of commercial real estate activity and therefore doesn’t “fly as high” as the other cities in boom times, but over the years it has also tended to avoid the precipitous plunges that can plague a Houston or Dallas in years of lean absorption. Key to this steady progress has been the diverse economy mentioned above, and there are strong indications that traditionally quiet, conservative San Antonio may now be on a long, upward climb towards increased prosperity. Consider these examples:

Eagle Ford Shale

Development of the Eagle Ford Shale, a vast new oil and gas producing region, shows promise of being the most important single economic generator that South Texas has ever seen, according to industry and governmental studies. In the play’s first 2 years, the Eagle Ford has spun off economic benefits of more than $2.1 billion. By 2020, the Eagle Ford is expected to account — directly and indirectly — for more than $21.5 billion in economic output and 68,000 full time jobs in South Texas.

Mexican Nationals

Catalyzed by positive factors such as San Antonio’s quality of life and negative ones such as the recent border violence, many more Mexican nationals are making the trip to San Antonio — and they are coming to stay. Recent estimates are that more than 100,000 new residents have moved to San Antonio from south of the border over the last few years. These well-dressed and often affluent émigrés are bringing their families to San Antonio to live, shop, invest and open new businesses.

Military City USA

Thought of in the past as perhaps an unexciting component of San Antonio’s economy, the military expansion now underway here is generating nothing less than significant enthusiasm. The U.S. military is in the middle of a $2.1 billion expansion project in San Antonio which is transforming Brooke Army Medical Center and Wilford Hall into the headquarters for military medical training. With this military medical expansion are coming an estimated 17,000 new local jobs, many at the clinical, research and physician levels.

Biomedical Business

In addition to the benefits of the military medical expansion is the fact that several years ago health care and the biosciences combined surpassed tourism as San Antonio’s number one economic generator and leading business sector with an annual economic impact approaching $25 billion. Spurring the entrepreneurial end of this spectrum is a recent wave of successfully launched and venture capital-funded biomedical startups operating in areas from trauma and wound care to high-tech diagnostic and therapeutic devices.

Corporate Moves

In the last several years, San Antonio has enjoyed national attention from corporate move prospects and a wave of announcements for new local facilities for companies including Medtronic, Kohls, Petco, Microsoft, Nationwide Insurance, Allstate Insurance, Becton-Dickenson and VMC Consulting. Also significant is the selection by Silicon Valley-based InCube Labs to move its headquarters to San Antonio. InCube Labs founder and CEO Mir Imran holds more than 250 patents and has created 22 biomedical companies, 20 of which are still in business.

Information Security

With the need for information security and threat analysis at an all-time high, San Antonio stands to benefit greatly from this recession-proof sector. The city is projecting significant long-term economic gains from large and newly developed government and quasi-government facilities dedicated to the ongoing analysis and protection of military and civilian electronic communications and the enhancement of national security. Several private firms in San Antonio are also expanding significantly in the cyber-security area.

Commercial Real Estate Activity

While recent years have been challenging, commercial property sales in San Antonio doubled from 2009 to 2010, and we expect the upward trend to continue. LoopNet Inc. reported that sales in commercial real estate totaled $732 million in 2010, a 97 percent increase over the previous year’s $371 million. The local office space market ended 2010 reasonably healthy with a citywide vacancy rate of 18.5 percent and space rental rates averaging $20-21 per square foot. Hotel revenues in 2010 increased 14 percent over the previous year’s totals.

There is no doubt that today’s business climate presents challenges for all cities including San Antonio. The factors above are but a few reasons why many experts believe San Antonio is well positioned to enjoy a significant share of the activity as Texas continues to be a bright spot in the nation’s economy.

— Stephen C. Hall is managing director of CASE Commercial Real Estate Partners/TCN Worldwide.

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