TEXAS SNAPSHOT, JANUARY 2008

San Antonio Retail Market

Ivey

It would take a statistician of tremendous skill to sum up retail activity in the San Antonio area. There is so much going on in all sectors of commercial real estate, particularly retail. We are especially fortunate to be experiencing this level of economic prosperity.

Although the commercial real estate market may have softened slightly in other areas of the country, the San Antonio market has remained steady and active during 2007, with the number of new jobs in San Antonio rising to nearly 16,300 by mid-year. Similar trends continued through the third quarter. New single-family home starts topped out at 19,092 in 2006, and by the second quarter of 2007 — despite rising interest rates — had already reached 7,497.

Calculations in early 2007 showed new rental space coming on line only slightly ahead of demand with a vacancy rate of 11.2 percent, despite rental rate increases of 6.5 percent. Power Centers anchored by H-E-B, Wal-Mart, Target, Lowe’s Home Improvement Warehouse and The Home Depot led the city in leased space, with rental rates increasing 7.4 percent during the first half of the year. New retailers to the market include Bass Pro Shop, HomeGoods, Dick’s Sporting Goods, Steve & Barry’s, Bush’s Chicken, Mimi’s Café, Houlihan’s, McAllister’s Deli, Panera Bread, ALTA, Boston’s Gourmet Pizza and the Vitamin Shoppe, to name a few.

More than 800,000 square feet of retail space came on line in the third quarter of 2007, bringing San Antonio’s retail inventory to 38.7 million square feet. The most apparent retail market growth trends are to the north, west and south of the city. In addition, new retail and residential development to the northeast continue to support booming growth along the San Antonio/Austin Corridor.

Competition between developers has motivated brokers to pursue new retailers for San Antonio as well as the development of new retail center design concepts to blend in with surrounding communities and their environments. The upscale, single-level center with outside, storefront exposure and landscaped common areas remains the most prevalent.

Seen more and more frequently on the radar is a keen interest in the expansion of hotel space, both in the downtown area and north of town. With this comes the necessity for more retail construction to meet the need for restaurants, physician’s services, pharmacies, shops and grocery stores.

The success of the Shops at La Cantera (1.3 million square feet) and The Rim (1.5 million square feet), off Interstate Highway 10 West, near Fiesta Texas, clearly demonstrates San Antonio’s potential for the upscale retail market. Since opening, parking lots at these two new centers remain full from open to close.

Population growth and the extension of residential development to the north, northeast, west and northwest of the city have brought about increased need for educational, retail and medical facility construction and expansion in these areas. Hill Country corridors along IH-10W and Highway 281 North are each seeing upwards of 120,000 vehicles per day. Familiar power center retailers, start-up businesses as well as franchisees from other regions of the country also are finding these areas attractive.

To the north, the Washington Mutual regional offices and Tesoro Corporate offices, as well as ACCD’s Northeast Lakeview College (anticipated enrollment 25,000) in Live Oak and Rackspace’s adoption of the old Windsor Park Mall near Universal City for its new campus headquarters (1.2 million square feet and 4,000 new employees over the next three years) will greatly impact their respective areas.

Already impacting the San Antonio retail real estate market on the far north side is the development of the 1,300-acre JW Marriott resort set to open in 2010, and two 18-hole PGA Golf Courses going in off Highway 281 North.

Medical facility construction and expansion across the city’s northern sectors is also gaining momentum. The South Texas Medical Center between IH-10 West and Loop 410 West is the site of projects involving the University of Texas Health Science Center (UTHSC) and the Methodist/HCA-owned and locally managed Methodist Hospital. Also in this area, South Texas Oncology and Hematology (STOH) and South Texas Accelerated Research Therapeutics (START) have joined forces to construct a cancer treatment and research facility set to open in 2008.

On its coattails is the new Stone Oak Medical complex, north of Loop 1604 and bounded on the east by Highway 281 North. Now home to hundreds of physicians offices and medical services facilities, including North Central Baptist Hospital and the new Methodist Stone Oak Hospital (opening in Spring 2009), this area also hosts an upscale residential population often coined the New Alamo Heights. The Plaza at Concord Park in Stone Oak with 81,104 square feet holds the lead for speculative construction in this area.

Moving forward in 2008 is construction of the first medical office building in Agora Palms, a 69-acre unique master-planned, mixed-use development in the heart of Stone Oak alongside the Methodist Stone Oak Hospital. DAG Healthcare is the development, construction and management services provider for the project.           

San Antonio’s far west side population off the area’s IH-410 West/Highway 151 and Culebra/Potranco roads is now growing at record pace. These thoroughfares, stemming across the western section of the city, serve surging commuter traffic associated with a multitude of housing developments and business locations.

Scheduled to open in 2009, a new, more than 600-acre Texas A&M University campus off 410 and south of Zarzamora will eventually enroll over 25,000 students, bringing new jobs and a variety of complementary retail services to the area. Brooks City Base, with 2 million square feet of research lab space, still has more than 300 acres available for development off South New Braunfels. Just northeast of downtown at Fort Sam Houston Army Post, Brook Army Medical Center’s (BAMC) plans to expand to over 10,000 new employees during the next few years.

Other developments to the west of downtown include Port San Antonio (formerly Kelly Air Force Base) and Lackland Air Force Base, Wachovia Bank regional offices (formerly World Savings), Sea World and Sun City retirement community.

Increased residential and retail real estate development, which began in response to the 2006 Toyota plant opening in south San Antonio, has now extended toward Castroville and Floresville. Retailers, which until now were seen only in the north central and northern areas of town, are now doing great business on the south side. Predictions are that this trend will follow farther south and southwest as well.

A few of the most active retail developers are Hill Partners Inc. (HPI ), NAI/REOC, HEB, David Berndt Interests (DBI), Weitzman/Cencor Realty Services, REATA Real Estate Services and Fulcrum Property Group. Dominion Advisory Group, Inc. (DAG) is fast becoming a major player in this arena with eight new upscale retail centers in the works for future development set to occupy sites along Loop 1604/Highway 281 North and IH-10 West.

Our city, ranked seventh largest in the U.S., reflects the state’s top ranking for national overall growth. With the addition of more than 255,601 residents between the years 2000 and 2007¹, the city of San Antonio’s retail industry has experienced tremendous growth for over a decade. These trends have continued to positively impact the commercial real estate market throughout 2007. The influx of families relocating to our city proves that this is the place to be now and in the future. San Antonio will be a vibrant retail market in 2008 and beyond, continuing to build its reputation for stability and as one of the best places in the nation to live and do business.

— Cal Ivey is vice president of brokerage and build-to-suit services for Dominion Advisory Group, Inc. in San Antonio.

¹Texas State Data Center, Institute for Demographic and Socioeconomic Research, The University of Texas at San Antonio, September 2007.

©2008 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.