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Transportation and third-party logistics companies are flocking to fill San Antonio’s industrial space. For example, Tennessee-based logistics company Forward Air recently announced the lease of an 89,600-square-foot Air Cargo Terminal at Port San Antonio.
But Forward Air is just the latest among those moving in. Listed among the larger leases inked in the second quarter were companies such as JB Hunt (26,227 SF) and HDR Trucking (11,827 SF) at Woodlake Distribution Center I, CFI Delivery (23,400 SF) at City Park East Distribution Center B, Towne Services Moving Co. (21,964 SF) at Interstate Business Park 3 and the recent renewal and expansion of Hazen Transport (20,000 SF) at Rittiman Industrial Park — all of which are situated in the Northeast sector.
The growing oil production in the nearby Eagle Ford shale is the major driving force behind the increased transportation-related activity. The oil industry depends on trucks to haul machinery, equipment, piping and sand to the oil fields, and San Antonio serves as a hub for those services.
In addition, growing demand for rail-based logistics has prompted the development of two new rail parks in Southeast Bexar County – Alamo Junction Rail Park and Mission Rail Park. Railroads in and near the oil fields are busy moving crude oil, equipment and sand for hydraulic fracturing.
Property Type Breakdown
The depth and diversity of area businesses continues to produce growth in the local industrial market aside from transportation, logistics and Eagle Ford-related activity. Visionworks, for example, the national optical retailer for locally based HVHC, recently took down 120,760 square feet at 655 Richlands in the Far West sector.
In all, new leases and expansions in the second quarter generated positive net absorption for the ninth consecutive quarter. Local industrial properties experienced 564,220 square feet of net gain, which raised the year-to-date total to more than 850,000 square feet. With no new supply to offset the gain, the citywide vacancy rate was further squeezed from 9.1 percent last quarter to 8.1 percent at the end of the second quarter. At this time last year, the citywide vacancy stood at 10.3 percent.
As for more specific property types, distribution warehouse facilities recorded the greatest increases. The distribution warehouse market closed the second quarter with a citywide vacancy rate of 6.4 percent, down from 7.4 percent last quarter and 8.6 percent in second quarter 2012. Available big-block spaces are particularly limited.
After scoring the 128,354-square-foot expansion of USAA at the University Park Tech Center III & IV last quarter, the service center/flex market saw additional tenant activity, which improved the citywide vacancy rate to 13.4 percent, compared to 14.3 percent last quarter and 16.1 percent recorded in the same quarter last year.
In response to dwindling availabilities, rental rates are on the rise. The average cost of renting industrial space saw a sharp increase over the quarter – the citywide average quoted triple-net rental rate for all types of industrial space increased to $7.51 per square foot annually, up $0.12 compared to last quarter, which equates to a 1.6 percent increase. Over the year, asking rents are up 7 to 10 percent.
New Builds & Investment
With vacancy at an all-time low and demand for industrial space continuing, the market is positioned to grow; still, speculative development remains limited. The only spec project currently underway is an expansion of an existing project: Building 3 (66,170 SF) at Thousand Oaks Business Park in the North Central sector.
However, the development pipeline is beginning to take shape with five projects in design stages encompassing more than 1.3 million square feet. Meanwhile, several significant build-to-suit projects are nearing completion, including the Amazon.com fulfillment center (1.2 million SF) in Verde Enterprise Business Park situated in the Northeast sector, as well as Glazer’s Distribution (518,000 SF) and Maruchan (500,000 SF), both of which are located on the city’s southwest side.
Investment activity in the second quarter featured Dallas-based Atlas CP’s purchase of DCT Industrial’s San Antonio portfolio, which spans more than one million square feet in 15 buildings at Rittiman Industrial Park at IH-35 & Rittiman Road. In addition, 8800 Broadway Plaza purchased the 8800 Broadway complex (111,393 SF).
Looking ahead, local industrial space is expected to remain in tight supply in the near term, which will continue to put upward pressure on rental rates. With only the Thousand Oaks building scheduled to come online, new product will not be a factor through the remainder of this year, but the demand for space will likely prompt the announcement of new projects in the very near future.
— John Turcotte, senior vice president and partner, REOC San Antonio