TEXAS SNAPSHOT, OCTOBER 2010

San Antonio Industrial Market

The San Antonio industrial market posted negative absorption of 56,500 square feet in the second quarter of 2010, but that is an improvement from a year ago, when the negative absorption was more than 200,000 square feet. The story behind the numbers remains ProLogis’ aggressive rent offerings; they continue to capture the exceeding majority of the activity in the market with their low rental rates.

Separately, larger tenant transaction activity appears to be picking up again. With the three new-to-the-market transactions signed in the second quarter, two were around 100,000 square feet, and the third was 77,300 square feet; these are the largest new-to-the-market transactions since 2008. These tenants are set to take occupancy in the third quarter; unfortunately, these new leases alone will not be enough to post positive absorption in the quarter because the other notable story in the market is that three major tenants are vacating large blocks of third-party lease space. American Standard is vacating 350,000 square feet, Sysco Foods is building a new facility, which will result in 241,000 square feet of third-party warehouse space coming back on the market, and HEB is vacating 240,000 square feet by relocating some of its distribution activities to a new facility in Temple. 

With these large blocks of space coming back to the market, 2011 looks like it will be another relatively flat year for the San Antonio industrial market with no speculative development activity. However, the offset that could create significant positive absorption will potentially come in the form of Caterpillar supplier activity relative to the newly opened engine plant in Seguin. Presently, there is virtually no warehouse space available in Seguin; therefore, if the suppliers do in fact open warehouse operations in the immediate vicinity of the Seguin plant, it will likely occur in San Antonio.

— Ryan Smith is a principal at Cross & Co.

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