TEXAS SNAPSHOT, JULY 2008

San Antonio Multifamily Market

Fry

Infill locations are highly desired in San Antonio’s multifamily market, as the last available tracts of land suitable for development are being picked off. Areas popular with developers are north central San Antonio, the South Texas Medical Center, and the area of the city just north of downtown, known as Alamo Heights/Fort Sam Houston.

A recent trend is for multifamily developers to raze existing commercial buildings to make way for new projects, such as Chancellor Property’s site on Austin Highway, Regent Communities’ site across from the Pearl Brewery, or Bakke Development’s redevelopment of El Chaparral on Harry Wurzbach. With the high price of gas, renters have a stronger desire to live in close proximity to where they work and play. This is driving developers to create urban infill communities.

The new development that will have the greatest impact on San Antonio is River North, a city-led initiative calling for the expansion of the River Walk just north of downtown. The city of San Antonio is creating a new urban lifestyle that will invigorate the urban core. The overall goal with this new development is to produce a downtown that is as attractive to locals as it is to tourists.

The Stone Oak community continues to be a hot area for retail, single-family and multifamily development. This submarket currently has an extremely competitive apartment environment, and it is a highly desired area in which to live due to its pristine hill country setting and its proximity to employment and entertainment. In the coming years, as the availability of land tapers off and the amount of jobs in the area increases, it should prove to be an even stronger submarket.

There also are several developments on the horizon for the Interstate 10 corridor outside of Loop 1604. The éilan is a 120-acre mixed-use project consisting of luxury apartments, offices and retail, and The Town Center at La Cantera is the expansion of The Shops at La Cantera, a 175-acre project that will include upscale hotel, residential, retail, entertainment and office space. With congestion being such an issue in Stone Oak, this corridor has become a nice alternative for renters.

There are several new development groups that are circling San Antonio. With development on hold in Florida, California, Nevada and Arizona, the state is seeing a lot of first time Texas developers that are either active or actively looking for development sites in San Antonio.

San Antonio’s multifamily market is seeing a trend toward luxury, high-density development in irreplaceable locations. This urban mid-rise product is intended to attract the affluent young professional or empty nester that is location-sensitive. Due to a limited amount of land, or costly land, developers have to create high-density communities with structured parking. To justify the cost of developing this type of product, rents of $1.40 per square foot or greater must be achieved. Some examples of this trend are the Artessa overlooking the Quarry, which currently is being built by Embrey Partners, and Chancellor Property’s site along Austin Highway.

In the near future, there should be an increased focus on northeast San Antonio. With the relocation of Rackspace to the former Windsor Park Mall and its addition of 4,000 jobs by 2011 as well as the 11,000 new military personnel created by Fort Sam Houston’s expansion, this area should see a surge in growth.

Another area of interest is the South Texas Medical Center. There is $640 million worth of projects that are either under development or planned over the next 4 years, and new developments are announced every week. Anchored by the University of Texas Health Science Center and Methodist Hospital, this medical area is booming.

For the past 12 months, more than 4,300 new multifamily units have come on line. In spite of the new product that continues to spring up in San Antonio, rents are up, and vacancy figures are down. During 2007, effective rents posted their largest annual increase since 1996 at 3.4 percent.

The pace of new apartment deliveries is expected to ease in 2009. With solid economic and demographic trends, it should allow for healthy gains in occupancy and effective rents.

— Casey Fry is a transaction manager with Apartment Realty Advisors in San Antonio.

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