TEXAS SNAPSHOT, JANUARY 2006

San Antonio Industrial Market

San Antonio's industrial market is seeing new construction activity like never before, according to Ryan Smith, senior associate with San Antonio-based Cross & Company. This construction activity has been spurred on by the anticipated 2006 opening of Toyota's assembly plant in south San Antonio, in addition to new, well-capitalized players that have entered the market. “Approximately 1.69 million square feet of Class A space has been added in the last year and approximately 1.09 million square feet is planned for 2006,” Smith says. “This new activity is significant when you consider that the San Antonio distribution warehouse market is only 15.1 million square feet, according to REOC Partners.”  

Several significant industrial developments currently are planned or underway in San Antonio. Formerly a United States Air Force Base, Kelly USA Industrial Park is the nearest industrial park to San Antonio's new Toyota manufacturing plant but, more significantly, Kelly USA has the potential to become an inland-port since it possesses a 11,500-foot-long runway, rail service and 65 existing tenants, many of which are in the aerospace industry. Kelly USA, which is located in southwest San Antonio off of Highway 90, has 1,880 acres with a development potential for up to 8.2 million square feet of warehouse space. “Kelly USA has the potential to have the most significant impact on the industrial market in San Antonio for at least the next decade,” Smith says.

The next most significant area of industrial development activity, according to Smith, is found in the Tri-County Industrial Park located in the city of Schertz, a suburb of San Antonio to the northeast along Interstate 35. The 280-acre park was developed in the late 1980s and now the original development is virtually built-out with more than 2 million square feet of distribution warehouse space. Several developers have taken large land positions to expand this thriving industrial area. “A significant reason for the park's success has been the city of Schertz's pro-business attitude illustrated with quick building permit issuance and tax incentives that keep the operating expenses lower than competing properties,” Smith says. “Additionally, Tri-County's location to the north of San Antonio means that companies doing business in San Antonio and Austin can avoid San Antonio traffic and they have immediate access on and off of I-35.” Tri-County is also a Double Freeport Zone (county and city only), which provides companies an exemption of up to 100 percent of personal property taxes on goods-in-transit or inventories in manufacturing process that are moved outside of the state of Texas within 175 days.

The third industrial property in San Antonio that should be watched is Cornerstone Industrial Park, Smith says. Originally developed in the late 1980s by San Antonio Savings & Loan, this 270-acre industrial park has just recently become the focus of new construction activity with a speculative 188,000-square-foot warehouse completed last July. Another 400,000 square feet of warehouse space is planned for this year.   Cornerstone, which is located on the east side of San Antonio in the northeast corner of Interstate 10 and Loop 410, is effectively positioned at the crossroads of all truck traffic from Mexico (NAFTA) and the I-10 traffic from California to Florida. Companies considering Cornerstone have the following incentives available to them: it is a Foreign Exchange Zone providing companies the opportunity to defer paying their import duty fees and it is a Triple Freeport Zone (county, city and school district).

  San Antonio's industrial properties are trying to attract tenants like distribution companies moving products out of Mexico, tier-two and -three Toyota suppliers, and local/regional distribution companies. Class A asking rates are $4.25 per square foot and Class B asking rates are $3.60. The citywide vacancy rate for distribution warehouse space is 14.8 percent or approximately 2.24 million square feet. “However, many of the vacant properties are antiquated by virtue of having low-clear height and/or short truck courts, which is the primary reason for the significant increase in new construction,” Smith says.

In general, good things are happening in San Antonio. In addition to Toyota and the 21 tier-one Toyota suppliers, many other companies, like World Savings, Washington Mutual and The United States National Security Agency, have all announced significant hiring plans for 2006. “Since San Antonio was chosen by Toyota, these announcements do not seem that uncommon, so the significant development activity in the industrial market during 2005 is evidence that the industrial developers confidently believe that big things are in store for San Antonio's future,” Smith says. “Furthermore, if the U.S. and Mexico are ever successful in negotiating a cross border trucking accord, then San Antonio's location at the intersection of I-35 going to Canada from Mexico and I-10 from California to Florida will finally provide San Antonio with much greater benefits from NAFTA. I believe that San Antonio is presently in the early stage of an enormous growth cycle that will allow us to look back and say that we were fortunate to have been in the right place at the right time.”


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