REOC San Antonio
Commercial Real Estate Since 1974   
Kim Gatley
enior Vice President & Director of Research at REOC San Antonio

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REOC San Antonio Releases 3Q16 Industrial Market Update


Source: REOC San Antonio/Xceligent

The San Antonio industrial market experienced a marked slowdown in the third quarter reflecting the first real impact of reduced oilfield activity in the Eagle Ford Shale. Chalk Mountain, for example, recently vacated more than 50,000 square feet of warehouse space at Alamo Downs Distribution Center. It is expected that Chalk Mountain, a leader in the oilfield services industry which specializes in the transportation management of proppant, commonly known as frac sand, will vacate several sizeable leases located throughout the market as they expire over the coming year.
Although the loss of frac sand leases could potentially dump as much as a half million square feet or so of vacant space back on the market, the impact is not expected to be dramatic because the lease expiration dates are staggered which will allow the market time to adjust and backfill. New leases and expansions recorded between the beginning of July and the end of September featured Trane Supply (62,320 sf) at Eisenhauer 35 Business Park and Wisenbaker Builder Services (58,000 sf) at Interstate Business Park – both in the dominant Northeast sector.
Still, the losses will mitigate gains as they did in the third quarter which resulted in 118,478 square feet of negative net absorption. Negative absorption is not expected to be a trend and the third quarter loss did little to lessen the healthy 1.35 million square feet of positive net gain year-to-date. The third quarter loss did, however, cause the citywide vacancy rate to increase from 7.3% last quarter to 8.3%; yet, compared to the same quarter last year, the citywide vacancy rate is improved compared to 8.9% showing the overall positive trend over the year.
Accompanying the slightly higher vacancy rate this quarter, the citywide average quoted rental rate dropped one cent compared to last quarter and currently stands at $5.86 per square foot per year on a triple net basis. This is down $0.08 from the same quarter a year ago for a modest annual decline of 1.3%. Although rental rates vary depending on location and property type, the general downward adjustment in the overall average reflects the reaction of landlords attempting to attract and retain tenants as space options increase.
Looking at the market by the two major property types, the Service Center/Flex submarket outperformed the Distribution Warehouse submarket with 106,119-square-feet of positive net absorption recorded within the third quarter compared to the negative 224,597 square feet experienced within area Distribution Warehouses. Although the citywide vacancy rate for Distribution Warehouse facilities grew to 8.5% compared to 6.6% last quarter, it remains relatively stable compared to 8.7% recorded a year ago. Meanwhile, the citywide vacancy rate for Service Center/Flex properties tightened to 7.7% compared to 9.8% last quarter and 9.7% last year at this time.
The citywide average cost for renting Distribution Warehouse space currently stands at $4.82 per square foot annually, marking a negligible $0.02 drop compared to a year ago, while the cost for Service Center/Flex space in the San Antonio area currently averages $9.21 psf, which is up $0.20 from the same quarter last year. Of course, even within the property types, rental rates vary based on location, age and other factors.
Nearly 435,000 square feet of new industrial space was delivered to the market in the third quarter including two buildings in the Cornerstone Industrial Park and Doerr Lane Industrial Park in the Tri-County area of the Northeast sector.
Looking ahead, nearly a million square feet of industrial lease space is moving through the development pipeline which will give tenants new options and space to expand. Vacancy rates may fluctuate as new product comes online at the same time as newly vacated frac sand space but the two are not expected to compete for the same tenants. The local market is consistently seeing larger space requirements from quality tenants which provide a growing list of prospects for the new projects but backfilling the older second-generation spaces may present more of a challenge.
Click to download REOC San Antonio’s complete 3Q 2016 Industrial Market Report


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