San Antonio Retail Fundamentals Rooted in Housing Growth, Spending

Alamo Ranch is the bright star in the bunch. Statistics solidly place this northwest subdivision in the top spot of San Antonio’s fastest growing subdivisions with 649 new housing starts in fourth quarter 2012. Bulverde Village, in second place, saw 169 new home starts during the same time. April single-family home sales rose 14 percent over last year and 4.5 percent from last month, according to the San Antonio Board of Realtors.

In keeping with the boost in housing, retail is showing solid, if slow, growth. San Antonio retail occupancy rates increased for the fourth consecutive quarter, reaching 94.5 percent in first quarter 2013. And while rental rates remain fairly flat, according to research from Delta Associates, the second half of 2013 is looking up.

Among those who have announced expansion plans: CVS/pharmacy, Walgreens, Walmart, LA Fitness, 7-Eleven and Aldi. Marcus & Millichap reports that local openings will double compared to last year. With heavy pre-leasing and higher tenant demand, forecasts are for the largest rent growth in nearly six years by the end of 2013.

Contributing to the optimism is the rate with which shoppers are supporting the stores. ICSC reports that after a dismal March, U.S. shopping center sales are back up 1.6 percent in April. Chain stores, in particular, posted a gain of 2.7 percent on a year-over-year basis with ICSC predicting an increase in the monthly sales pace between 2 and 3 percent. The pent up demand seems to be outweighing both the tax and gasoline price increases, perhaps because of rising home values and stock prices in combination with reduced debt. These gains are particularly strong among upper income households, according to the most recent survey from Thomson Reuters/University of Michigan Surveys of Consumers.

This spending led to a 5.5 percent increase in total net operating income (NOI) on a square foot basis during the first quarter over the same time last year. The NOI growth led retail, restaurants and bars to contribute the most to April’s U.S. employment growth, according to ICSC. It’s the fourth consecutive quarter shopping centers have seen an increase in NOI.

Even though retail is ranked as the best performing sector by a significant margin in the most recent National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index nationally — even outperforming apartments — the retail market in San Antonio still feels just a little flat. There aren’t a lot of tenants moving around, and even fewer new ones coming to town.

The statistics seem to point toward growing confidence, but the overall economy is still very tough, growing in a slow and careful way, but not quite enough to support a lot of movement in the retail sector.

While consumers are doing a better job of improving their finances, according to the Federal Reserve Bank of New York, questions remain as to whether or not it’s enough to offset the growth that occurred between 2000 and 2011. In the first quarter of 2013, delinquency rates declined as did total household debt — to its lowest level since 2006, in fact. However, according to the last Census report Household Debt in the U.S.: 2000 to 2011, the median amount of debt per household increased from $50,971 to $70,000 with credit card debt declining and unsecured debt rising.

With Americans loaded down with debt, national credit stores are having to be very picky about where they locate, how quickly they open new stores and what their rent structures are going to be. The question of what happens if the credit card industry goes under looms like a dark cloud as we look into the future.

— Bill Holder, president of DH Realty Partners, and Michael Hoover, president of DH Realty Management