Strong Demand Underserved in San Antonio Multifamily Market
Amara Apartments is Oden Hughes’ 308-unit, Class A multifamily property scheduled to open in mid-2018. The property, which is located near shopping and dining destination The Rim, reflects the influence of retail on San Antonio’s multifamily development.
San Antonio is one of the nation’s fastest-growing cities, with a booming, diversified economy that’s luring new businesses and young people at a rate that most other metro areas can only envy.
Lacking Austin’s hipster cred, Dallas’ moneyed glamour and Houston’s perennial position at the epicenter of a global industry, San Antonio’s many strengths are often overlooked. While this lower profile hasn’t slowed growth in the Alamo City, it has left its expanding market for Class A apartments comparatively underserved.
Led by education and health services, the San Antonio area’s economy added approximately 21,500 new jobs in 2016. This represents a 2.1 percent growth rate, a healthy pace for the San Antonio MSA, albeit a slight reduction from the 2.8 percent growth rate in 2015, according to the Federal Reserve Bank of Dallas.
This steady expansion fueled a population boom that saw 47,906 new residents join the metro between July 2015 and July 2016. This 2 percent growth rate ranked San Antonio as the 10th fastest-growing MSA with a population greater than 1 million people, according to estimates by the U.S. Census Bureau.
Millennials Lead the Way
San Antonio isn’t just a leader in total population growth; it also ranks among the top destinations for millennials — an important demographic for multifamily developers and owners. The metro’s millennial population grew by 30 percent from 2000 to 2013, beating Austin’s 28 percent increase, according to Bloomberg. In fact, San Antonio’s increase in the number of millennials living in the suburbs from 2010 to 2015 ranked second in the nation.
The influx of young people — combined with city incentives — has fueled multifamily development and redevelopment in downtown San Antonio. But more than 2.5 times as many young renters are choosing to live in San Antonio’s suburbs than in the urban core, according to data from the Urban Land Institute analyzed and reported by Time.
Although San Antonio’s total population of young people rivals its higher-profile neighbor to the north, construction of new apartments in the Alamo City lags considerably.
The Austin market added 9,509 new apartments over the last 12 months, while the San Antonio multifamily market grew by just 5,614 new units during that stretch, according to Austin Investor Interests, which tracks multifamily data throughout Austin and San Antonio. With 9,486 new apartments expected to hit the Austin market over the next 12 months compared to just 5,760 in San Antonio, the trend doesn’t appear to be going anywhere. The average occupancy rate for Class A stabilized properties in the two MSAs during the second quarter was nearly the same: 92.7 percent in San Antonio and 92.8 percent in Austin.
Few areas of the city have seen as much population growth and multifamily development as the city’s Far Northwest submarket.
This picturesque area at the foot of the Texas Hill Country has long attracted high-paid executives and boasts many of the city’s top-ranked public schools. It’s also home to many major employers: University of Texas at San Antonio, the South Texas Medical Center, NuStar Energy, Medtronic and iHeart Media.
Office, Retail Pitch In
Office development, corporate relocations and business expansions have skyrocketed in recent years.
In late 2016, USAA leased 286,640 square feet at Vista Corporate Center and Westridge Two at La Cantera with plans to relocate 1,500 employees to the area. Security Service Federal Credit Union built a new 250,000-square-foot headquarters at Interstate 10 and UTEX Boulevard in 2015. Hulu recently leased between 50,000 and 60,000 square feet in Fountainhead Park near the South Texas Medical Center with a commitment to create 500 jobs in San Antonio in the next three years.
This area also features some of the city’s most popular retail amenities, including shopping and entertainment destinations The Rim and The Shops at La Cantera, as well as perennial after-work and weekend favorite Topgolf.
With so many new, high-paying jobs and popular amenities joining the scene, it’s not surprising that multifamily development is booming here as well.
According to Austin Investor Interests’ second quarter report, nearly 1,000 new units came on line in the area surrounding I-10 near Highway 1604 during the 12-month period ending in June 2017. This figure represents nearly 20 percent of all new apartments built in the entire San Antonio market.
Looking forward, the multifamily data firm projects approximately 2,500 units will be completed in this submarket over the next 12 months, representing more than 40 percent of all new units delivered in San Antonio.
Even with this wave of new construction, occupancy rates for stabilized Class A apartments in the area remain a healthy 92.6 percent at the end of the second quarter, according to Austin Investor Interests.
The Far Northwest submarket is just one bright spot in an overall strong San Antonio multifamily market. New construction may be on the rise, but the market remains underserved compared to other major Texas metros, presenting many opportunities yet for multifamily developers.
By Tim Shaughnessy, vice president of development, Oden Hughes LLC. This article first appeared in the November 2017 issue of Texas Real Estate Business magazine.