TEXAS SNAPSHOT , MARCH 2005

San Antonio Industrial Market

New industrial development in San Antonio appears to be picking up as developers gear up for the anticipated growth from Toyota, according to Robert C. Kramp, director of national client services for Grubb & Ellis Company in Houston. Toyota recently announced that more than a third of their suppliers will be located onsite at the intersection of Watson Road and Applewhite within the South submarket, which brings opportunity to area landlords in search of tenants.

On top of the excitement surrounding Toyota’s announcement, new construction in San Antonio is also creating a stir. “Nearly 350,000 square feet of industrial product was delivered in 2004, and there is 450,000 square feet of speculative construction underway,” Kramp says. Los Angeles-based Hollyhills Development is developing South Port, a new 522-acre industrial park underway directly across the street from the main entrance of the Toyota site. South Port will offer 400 acres of space for light industrial, manufacturing and distribution uses. The first phase is scheduled for completion in the fourth quarter of this year. “South Port is the first example of growth spurred by the arrival of the Toyota manufacturing plant,” he says.

Currently, the Northeast and Northwest submarkets account for the majority of San Antonio’s speculative construction pipeline. Developers are capitalizing on its strategic location with rail access along Interstate 35 and the infrastructure that is in place.  Some of these new developments include: Rittiman Plaza Center, Cornerstone Industrial Park and Tri-County Business Center.  Most notably, the Tri-County industrial development remains one of the most attractive with tax abatements and triple-freeport exemptions available.

Although the manufacturing sector has yet to fully recover, high retail sales during the past year bolstered the strength of warehouse/distribution space in San Antonio, according to Kramp. “As a result, warehouse/distribution product featured the largest absorption gain with 524,548 square feet for the year,” he says. For example, Lanark Street Venture, L.P. recently leased 58,000 square feet at the Pan Am Distribution Center Number 1, which is a warehouse/distribution center located at 3337 North Panam Expressway in San Antonio’s Northeast submarket.

Reflecting a small recovery in the warehouse/distribution market, asking rents slightly increased by $0.16 to $4.01 per square foot per year during the final months of 2004.  Meanwhile, triple net asking rents for general industrial facilities increased $0.32 to $4.79 per square foot per year. Also, triple net asking rents for R&D/flex product grew by $0.03 to $8.44 per square foot per year during the fourth quarter of 2004, which was a result of new and more expensive space coming on line.

Vacancy rates in San Antonio’s industrial market are 14.6 percent for general industrial, 13 percent for R&D/flex product and 13.3 percent for warehouse/distribution space. The total vacancy is 13.6 percent.

Before Kelly and Brooks Air Force Base was privatized, the South Side wasn’t really acknowledged as a sector in itself for industrial development. Yet, in the year ahead, expect this area to remain attractive to developers positioning themselves for anticipated growth from Toyota.

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