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Impressive Absorption Part of Strong Q2 Retail Performance

SAN ANTONIO, TX—Buoyed by the projected 3.4% increase in retail sales, the local economy will continue to attract retailers and restaurants with steady population growth and a strong housing market.

By Lisa Brown | lisabrown | | Updated on August 23, 2016
Cynthia Ellison Ellison says retail appears to be on track for another solid performance in 2016.
SAN ANTONIO, TX—An active local housing market coupled with a stable regional economy and healthy job growth continue to support the expansion of the San Antonio retail real estate market. The strong second quarter performance featured an impressive 542,735 square feet of positive net absorption, according to the survey of more than 47 million square feet of retail lease space conducted by the research department of commercial real estate firm, REOC San Antonio , in conjunction with the Xceligent Retail Advisory Board –a group of leading retail brokers who meet quarterly to review and certify the analytic information.  The second quarter gain was led by activity in the regional mall submarket with activity reported at the recently completed Shops at Rivercenter –the renovated portion of RiverCenter Mall which is now home to Battle for Texas-The Experience, Dave & Busters, H&M and many other retailers. At the close of the second quarter, the citywide retail market vacancy rate tightened to 7.8% compared to 9.2% last quarter and 10% recorded in the same quarter a year ago.  “New leases and expansions continue to backfill existing spaces even as some big-box retailers trim space requirements,” says Cynthia Ellison , senior vice president, REOC San Antonio and member of the Xceligent Retail Advisory Board. Mega Furniture , for example, recently filled the 39,500-square-foot space previously occupied by Best Buy at South Park Plaza located along SW Military across from South Park Mall.  Similarly, Forever 21 filled 22,000 square feet at Ingram Festival.  Ellison tells GlobeSt.com: “The San Antonio retail market maintained a healthy sub-10% vacancy rate in the first half of the year and appears to be on track for another solid performance in 2016.  Healthy absorption coupled with low vacancy creates the perfect environment for rising rental rates but speculative development remains limited. Area retail properties will continue to benefit from population growth and a strong housing market–the two main drivers that make San Antonio an attractive market for retailers and restaurants looking to expand.”  Meanwhile, new construction is largely user driven, including several Walmart Supercenters and Neighborhood Markets . Alamo Crossing , for example, is an emerging retail hub at IH-35 and Zarzamora featuring Lowe’s and a newly completed Academy Sports and Outdoors (62,942 square feet) along with surrounding fast food and restaurants.  Less than 125,000 square feet of retail lease space is currently under construction including several small neighborhood and strip centers scattered throughout the San Antonio area. Singing Hills, for example, the Far North Central Walmart-anchored center located at US 281 and Highway 46 in Bulverde, kicked off construction on the first of several planned shadow retail centers. The 12,588-square-foot center is 100% pre-leased and slated to reach completion by the end of the year. Similarly, construction started at Potranco West in the Far West sector. It is proposed to eventually be an H-E-B -anchored center but, so far, only a small retail and pad site development is underway. On the horizon, The Shops at Dove Creek is slated to deliver roughly 400,000 square feet at Loop 1604 and Potranco Road in the Far West sector.    “Limited new construction coupled with retailer demand for space supports a rich environment for rising rental rates,” adds Ellison.  Although the citywide average rent stepped backwards $0.31 in the second quarter, the current rate of $16.01 is up $0.75 or 4.9% compared to this time last year. Of course, rental rates vary by product type and location so tenants should not expect to negotiate the citywide average rent. In fact, asking rents for top-tier shop space can reach into the $40s. New construction typically ranges between the mid-$20s to the mid-$30s–again, depending on location, co-tenancy, finish-out, etc. Although speculative development in the region remains limited, the San Antonio retail market will benefit from the projected 3.4% increase in retail sales, forecasted by the National Retail Federation .  In addition, the local economy will continue to attract and support expanding retailers and restaurants with steady population growth and a strong housing market.  

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