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Influx of Millennials Bolsters San Antonio’s Multifamily Fundamentals

An overwhelming number of residents are moving to San Antonio rather than leaving. The metro experienced a net in-migration of nearly 21,000 households in 2016, according to Moody’s Analytics, the latest data available at the time of this writing.

Michael Watson, San Antonio Commercial Advisors

The metro primarily draws from Austin and Houston with a notable cohort of new residents coming from Washington, D.C. Many newcomers to San Antonio from the nation’s capital are drawn to the city’s military and defense industries.

Basic Numbers

Among these in-migrants to San Antonio is a large proportion of millennials. At 14.4 percent, San Antonio ranked No. 2 in terms of the fastest-growing areas for young adult growth from 2010 to 2015, according to a 2018 report from The Brookings Institution.

San Antonio’s rate of millennial population growth during that period outranked that of  peer and non-peer cities such as Austin, Denver, Houston, Orlando and Seattle, among others. As a result, the San Antonio market skews younger with approximately 25 percent millennials and 28 percent Gen Z. The median age in San Antonio is 34, four years lower than the national average among comparable cities.

Kristina Garcia, Cushman & Wakefield

In turn, the metro’s job growth both reinforces and is fueled by this in-migration, accounting for its low unemployment rate of 3.1 percent as of March (compared a national unemployment rate of 3.8 percent at that time).

Total employment expanded by 25,000 net jobs from March 2018 to March 2019,  according to the U.S. Bureau of Labor Statistics. Gains in the professional and business services and education and health services sectors, as well as leisure and hospitality drove this growth, accounting for more than 15,000 of the net jobs added.

Contributing to this trend is the movement of companies and residents who are priced out of Austin in terms of both office and multifamily rents. The expansions of companies like USAA and Hulu in downtown San Antonio over the past couple years have fostered more retail and restaurant growth, enhancing the walkability along San Pedro Creek and the Riverwalk area, which appeals to millennials and boomers alike.

Runway Extended

According to Cushman & Wakefield’s data, New Braunfels — really the Northeast submarket as a whole — is seeing the strongest pace of new migration from Austin. This growth stems from both new residents finding employment in San Antonio and overflow renters looking for better value while being close enough to enjoy the amenities of Austin.

More migration of millennials will have an impact on multifamily demand moving forward and activity in various submarkets. For example, the influx of residents into San Antonio has helped fuel downtown renewal, triggered rapid growth in the Northwest and brought overflow renters from Austin to New Braunfels and the Northeast.

The rise of coworking space has also accommodated millennial growth and San Antonio’s startup culture. Firms like CO LAB, Cubes at the Quonset, Geekdom, The Impact Guild, LiftOff, The Workery, VenturePoint and Venture X, are some of the smaller coworking concepts that have committed to San Antonio. WeWork is also opening its first space in San Antonio in the Kress and Grant buildings in downtown’s tech district later this year.

Downtown Revitalization

Downtown San Antonio has experienced a revival with the Pearl District serving as the anchor. The University of Texas at San Antonio’s downtown campus expansion will bring thousands of new students to downtown within the next few years, creating ancillary development that will support the continued evolution of the San Antonio tech corridor. Other signs of increased investment in downtown include the Frost Tower office high-rise and the revamping of Alamo Plaza, a project that includes a proposed museum.

North San Antonio is currently the most active multifamily construction market with 1,600 units under construction in Encino, Redland, Stone Oak and Timberwood Park, according to CoStar Group. Notable developments in this submarket are Aura Stone Oak (375 units), The Abbey at Sonterra (396 units), Standard at Legacy (323 units) and Edge & Stone (335 units).

The Far West submarket is poised for the most elevated multifamily construction activity going forward, with nearly 1,000 proposed units.

Given the low, ongoing homeownership rates among millennials, San Antonio’s multifamily market certainly has runway left. Nearly 38 percent of households in the metro area are renter-occupied as of 2018, and that number is projected to grow by more than 30,000 households in the next five years.

Net positive migration — particularly from higher cost of living areas — and ongoing job growth are fueling the underlying fundamentals that will sustain Axiometrics’ projected average annual rent growth  of 3 percent, if not more, over the next five years.

— By Michael Watson, senior director, San Antonio Commercial Advisors, and Kristina Garcia, Americas Head of Multifamily Capital Markets Research, Cushman & Wakefield. This article first appeared in the June 2019 issue of Texas Real Estate Business magazine. 

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