The R&D/flex product sector was the only property type to experience positive net absorption during the third quarter, posting 63,156 square feet, according to Grubb & Ellis. The warehouse/distribution property sector experienced approximately 166,000 square feet of negative net absorption during the third quarter.

By far, the biggest loss for San Antonio’s industrial market was American Standard, which decided to consolidate and move its distribution operations to Dallas-Fort Worth. The firm vacated roughly 408,000 square feet, and at the end of the third quarter, about 50% of that amount had been backfilled by smaller tenants.

Hollingsworth Logistics, for example, leased 86,400 square feet, while Phoenix Group filled 73,600 square feet and Scholastic took 44,800 square feet. All three deals represent are examples of existing tenants that expanded within the market rather than new entrants.

In addition to American Standard, Sysco also is exiting the San Antonio market. The food distribution is consolidating two locations – one in San Antonio and one in Round Rock, TX – into a single facility in Shertz, TX, just south of Austin.

Sysco currently owns and occupies about 330,000 square feet of industrial space in San Antonio. In addition, a Sysco subsidiary, Sigma, occupies 225,000 square feet in the city. When Sysco vacates its building, Sigma will move into that empty space, creating another large block of vacant space that will need to be backfilled, Stagers points out.

Unfortunately for San Antonio, American Standard and Sysco’s exits continue a trend in the industrial market that started several years ago. Crane Plumbing, for example, vacated 400,000 square feet near Hondo a couple of years ago, and Levi Strauss moved out of 200,000 square feet of functionally obsolescent space that has never has been backfilled.

“If you look at us relative to other Texas markets, San Antonio is lagging somewhat,” Stagers says. “If you compare us to other industrial markets across the nation – with the exception of coastal markets and Chicago – I’d say that we’re performing similarly.”

Unlike other Texas markets that benefit from rail access and intermodal activity, San Antonio’s industrial market is primarily driven by local consumption and companies that want to distribute goods to the area. Likewise, manufacturing activity has little impact on the market, despite the fact that Toyota has a large auto manufacturing plant in the city, and Ford also has a presence.

And, although the city’s office market has been positively impacted by the natural gas and oil exploration in the Eagle Ford Shale, the industrial market has not seen much related activity. “Most oil and gas firms are choosing to take industrial space in smaller towns that are closer to the Shale,” Stagers says. “These small towns don’t have office space, but they do have warehouses and other industrial buildings. And they have land for companies to build their own facilities.”

For example, the market is buzzing about Schlumberger Ltd. The company, which provides technology for oil and natural gas drilling, reportedly has plans to occupy industrial space in or near San Antonio.

However, Schlumberger’s absorption of existing space will be minimal. Industry experts say the company has acquired two vacant 84 Lumber facilities totaling about 80,000 square feet. Moreover, the firm is said to be working with a build-to-suit developer to construct an industrial facility on 38 acres near one of the 84 Lumber sites.

“We have demand, but it will take time to backfill that space with smaller tenants,” Stagers says.