TEXAS SNAPSHOT, JULY 2010

San Antonio Retail Market

One sign of the steady improvement in San Antonio’s retail market is evidenced by the fact that multiple retailers are vying for some of the market’s well-located vacancies. For example, when Hollywood Video announced plans to close the last of its stores this year and Blockbuster closed a few underperforming stores, the best locations garnered multiple letters of intent.

The retail market at mid-year 2010 still has its problems, of course (evidenced by the slight drop in occupancy when compared to year-end 2009). But if the market had not seen 15 video store closings (most of which were Hollywood Video) during the first 6 months of 2010, it might actually have posted an improvement in occupancy.

As of mid-year 2010, the market reports an overall occupancy rate of 89.7, compared to 89.9 percent at year-end 2009. The market’s stability can be attributed to the fact that no box stores closed during the first half of the year. The occupancy rates are based on a retail market inventory of approximately 36 million square feet of multi-tenant retail space in retail projects with 25,000 square feet or more. 

Despite the numbers that show increased vacancy, the San Antonio market continues to experience good activity — a result of the metro area’s relatively strong economy, which ranks as one of the strongest in the country, according to the Brookings Institution. The market is also helped by the near-total lack of new shopping center construction. Three new stores by the market’s leading grocer, H-E-B, represent the only new product this year. Two of the stores are in the outlying areas of New Braunfels and La Vernia, and the third is a 117,000-square-foot H-E-B Plus! that represents the redevelopment of Westlakes Mall, a former regional mall in San Antonio proper. The new H-E-B Plus!, opening in September, also represents the relocation of an existing H-E-B store.

Anchors are expanding in San Antonio, but primarily in existing or redeveloped space. For example, a 60,000-square-foot Toys “R” Us/Babies “R” Us combo store is taking former Circuit City and Linens ‘n Things spaces at San Pedro Crossing. However, the new combo store — set to open later this year — represents the relocation of the two concepts from nearby centers. Office Depot also opened new stores during the first half of 2010 in Culebra Market and in The Village at Forum Parkway. Another anchor, a movies-and-dinner concept called Alamo Draft House, is under construction at the Village at Stone Oak.

During 2009, when the troubled economy halted many retailer expansions, San Antonio — like most other markets — saw declines in rental rates. But for 2010, as the best centers and strongest submarkets find themselves with increased and often full occupancy, rental rates have stabilized.

As of mid-year 2010, the market continues to see asking rents remain stable, but actual net rents are often being reduced due to free rent concessions and higher tenant-improvement allowances. These concessions can vary greatly based on the length of the lease term, the quality of the tenant, the location and demand for the project, as well as requirements from the lender. But concessions in some cases have declined in 2010 when compared to 2009, and the highest concessions are seen in Class B and Class C properties.

Average Class A asking rents for small-shop, in-line spaces in the market’s strongest centers ranged from $22 to $28 per square foot per year. The best-located, small-shop space in the newest, strongest-anchored projects can often exceed these averages. Class B asking rates typically are in the $16- to $22-per-square-foot range. Class C asking rates are in the $8- to $15-per-square-foot range.

For the rest of 2010 and into 2011, we expect to see stability and even improvement in the San Antonio retail market. And since we don’t expect the market to return to widespread new construction for the foreseeable future, we should continue to see the current level of leasing activity help lift the occupancy rate.

— David Nicolson is president of The Weitzman Group’s San Antonio office.

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