2015 Texas Midyear Review, Part III

This week, our series on the major Texas metro real estate markets shifts its focus to San Antonio. San Antonio continues to see growth near or above prerecession numbers, unlike the majority of the country.

After a slow start to 2015, economic activity in San Antonio picked up in May. Jobs grew at an annualized 2.9 percent, slightly better than the state’s overall rate of 2.1 percent. Jobs creation should end up just above 20,000 jobs for 2015. However this is 30% less than last year’s total of over 33,000. The tepid start was due to low oil prices and the subsequent downturn in energy employment starting last November and continuing into 2015. That said, San Antonio’s unemployment rate continues to look good as it fell once again to a very low 3.6 percent, putting it in the top ten metro markets in unemployment, while rates in Texas and the U.S. ticked up to 4.3 and 5.5 percent, respectively.

San Antonio’s new oil industry and the breakeven prices for the Eagle Ford shale (which hover between $45 and $55 per barrel) will continue to have an impact on employment. Should oil prices drop below $40 per barrel for an extended period of time, the Alamo city’s outlook could change dramatically. The good news is that employment growth will be largely dependent on non-energy-related sectors such as healthcare, education, and professional and business services (all with long term, well paying jobs) this coming year. As a result, despite some weaknesses stemming from slowing Eagle Ford Shale activity and the strong U.S. dollar, year-to-date job growth in San Antonio is 1.5 percentage points above that of Texas.

The Alamo City is growing its military presence, even as other cities are seeing base closures. San Antonio was chosen for a new Air Force Installation and Mission Support Center. This center should bring 350 military and civilian jobs to the metro this fall. Because of the short-term nature of many military jobs, apartment operators near the base will benefit.


For the last few years, office development and construction was playing catch up to increased market demand due to oil growth south of the city. The good news is that any excess office is leased and many office tenants are outgrowing their existing footprints and looking at the market for new locations, which is accelerating demand for office space. Office developers will complete 1 million square feet of office space in 2015, raising total inventory 1.6 percent. That is over double of last year’s absorption. Solid occupancy of 86% with absorption of over a million square feet in the metro area will allow office rents to climb modestly. San Antonio’s most challenged office market (CBD at 80% occupancy) continues to improve also. 2015-16 will be interesting for developers looking for financing, with less than 40 percent of the total square footage scheduled to come online this year preleased. The large volume of speculative construction could create temporary concessions in the market while the lenders continue to watch absorption in a challenged market. However remember that the growth seen in all Texas metros, including San Antonio, is better than the vast majority of the country.


Apartment construction will remain strong with 6,500 apartments being added this year following 6,300 in 2014. Given San Antonio’s population growth and the popularity of renting among young professionals and transplants, we expect these units to be absorbed quickly and occupancy to remain around 92 to 93% with rents rising about 5% annually.

Many young professionals are moving into the SA area as job openings increase, creating demand for class ‘A’ rental housing nearby. Employment growth is led by professional and business services, financial services, and information technology. In addition strong hiring in the education and health services sector and leisure and hospitality industry will help diversify an economy heavily dependent on the military.

These young professionals are not obligate renters and many are looking to buy, considering San Antonio housing is the most affordable of the major Texas metros. According to Texas A&M Real Estate Center data, the June 2015 median price for a home in Austin was $270,100, Dallas $243,000, Houston $222,000, and San Antonio at $199,200.

However, young workers want to work, entertain, and shop near where they live. The redevelopment of the Pearl District is a great example. The majority of these young adults will stay in rentals, particularly in live-work-play neighborhoods where the cost of ownership is typically more expensive than the metro median priced home. Any softening in the market should be short term as deliveries decline drastically after this year and demand has the chance to catch up with the influx of new supply.


Developers will complete 1.5 million square feet of retail space in San Antonio this year, much of which is preleased. Rents continue to grow modestly with vacancy remaining unchanged. The bulk of the new retail development taking place this year is largely concentrated to the northwest and northeast, as builders and retailers seek to capitalize on strong demographics in this portion of the city. San Antonio is beginning to see development of core inner neighborhoods (King William district, Federal district) into a live-work-play atmosphere, which in turn spurs equity and developers to relook at this market.

H-E-B is planning for a new store downtown. Although the location will be smaller than the grocer’s normal footprint, it will be the first full-service grocery store in downtown San Antonio in years. Having a grocer convenient helps inner city growth dramatically. The majority of space coming online this year is preleased, and the lack of inventory will facilitate the backfill of a few remaining large spaces left over from the recession.

Single family residential

With resale inventory at 4.0 months of supply, San Antonio remains a sellers’ market. Home sales and values continue to improve from a year ago. As stated earlier we are seeing inner city values improve dramatically due to heightened demand from consumers and developers. Some have questioned these higher values and have even suggested the development of a new housing bubble. These fears are misplaced – presently those properties seeing strong appreciation are in inner city locations where new construction is beginning to replace 50+ year old structures due to the closeness of the neighborhoods. Accelerated housing appreciation is due to the market dynamics of strong demand met with limited supply, not speculation.

San Antonio median home prices increased 5.5% year over year from June 2014 to June 2015 and now sit at $199,200, while average home sales price remains strong at over $240,000. New home sales remain slower with about 10,000 starts this year. The strength of the market continues to be north and northwest including New Braunfels. The low inventory of homes and a 5%+ increase in construction help-wanted advertising in May / June suggest continued strength in residential construction in the months ahead.

The strength of the San Antonio market is its steadiness and affordability. Consumers and investors alike will continue to see values increase. The availability and affordability continue to attract industry. In San Antonio as rental affordability declines and mortgage rates remain low, more first-time homebuyers are being drawn towards homeownership but many prospective buyers are up against the low inventory problem. In almost all real estate channels San Antonio should continue its steady rise.