TEXAS SNAPSHOT, AUGUST 2005

San Antonio Retail Market

San Antonio is in the beginning stages of a retail evolution, with a number of new stores and investors entering the market. Unlike the larger cities of Dallas and Houston, San Antonio did not suffer from a prolonged employment pullback during the recent economic downturn, and retail sales growth continued at a healthy pace. Recent announcements indicate that employment growth will continue. Washington Mutual will relocate 4,200 jobs to San Antonio over the next few years, opening offices in north San Antonio near Stone Oak Parkway. The Washington Mutual relocation, the Toyota truck plant in the southwest submarket and Texas A&M’s plans for a campus to the west of the city demonstrate balanced employment growth for San Antonio.

The metro area is gaining the attention of more regional and national retailers, including high-end department and specialty stores. Alamo City will continue to benefit from population growth, which is being driven by the area’s affordable housing and increased employment opportunities. As a result, retail property sales activity in the region is expected to increase as additional capital enters the market in the near term.

Several large-scale developments are planned or under construction along Loop 1604 in the north and west metro area. These regions of San Antonio are in the metro area’s growth path. The most notable project is The Shops at La Cantera, a 1.3 million-square-foot lifestyle center that is slated to bring the first Neiman Marcus and Nordstrom stores to San Antonio. Four moderately sized neighborhood retail centers were completed in the first quarter of 2005, including the 22,000-square-foot Plazas at Portranco on Portranco Road and the 14,000-square-foot Bandero at Mainland on Bandero Road. In addition, the 136,000-square-foot completion of Phase III of the Rolling Oaks Mall in the northeast submarket took place in the first quarter.

Another development in the retail sector involves Florida developer Turnberry Associates, which has received from Mexico City-based Galleria Ventures Ltd. the right to build Regal Hills, a 1 million-square-foot retail center on its 400-acre tract at the intersection of Loop 1604 and Interstate 10. Longstanding plans by Galleria call for houses and commercial buildings to be built on the site, and Regal Hills will be situated on its northernmost 100 acres. This development will be the third major retail center under construction near this intersection, located opposite the University of Texas at San Antonio, along with The Shops at La Cantera and a 1 million-square-foot retail and entertainment complex called The Rim.

The opening of several high-end stores, coupled with many national retailers leasing space in recently completed centers, will help to push the average asking rent higher in 2005. Owners will charge $14.80 per square foot this year, up from $14.51 per square foot in 2004. The vacancy rate is expected to rise by 70 basis points to 13.8 percent by year’s end. The increase is attributable to the completion of large multi-tenant retail centers.

Non-local investors are expected to make their presence felt as word of San Antonio’s growth continues to spread. Activity among REITs has been relatively strong with several sales reported at more than $50 million. While investors seeking newer centers will have many options along the Loop 1604 and Interstate 35 corridors, buyers seeking repositioning opportunities will have better luck in established neighborhoods within Loop 410.

— Bradley H. Bailey is sales manager of Marcus & Millichap’s San Antonio office.

©2005 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.