Limited Construction Positions San Antonio Retail Market for Steady Growth

San Antonio is a testament to the old proverb that slow and steady wins the race.

Instead of becoming overheated in response to the benefits of strong employment and population growth, the metro’s retail market continues to take a measured approach to growth. That approach has enabled an exceptional occupancy rate for its brick-and-mortar retail inventory.

Michael Schoenbrun, Weitzman

Michael Schoenbrun, Weitzman

Development vs. Occupancy

Measured, demand-based construction is one of the key reasons that San Antonio’s current retail market enjoys a near-record balance of supply and demand. Currently, the market’s overall occupancy is a healthy 94 percent. We expect this rate to be maintained as retail demand continues during a time of very limited construction of new retail product.

The market’s limited retail construction of only 360,000 square feet this past year was dominated by H-E-B, which opened two new stores in 2017. The locations came on line either freestanding or with limited peripheral small-shop space, further tightening the market for available space.

To illustrate exactly how low new construction is, we compared the current market to a decade ago, when the economy was in a similar cycle.

The market’s occupancy at year-end 2007 was 91.2 percent, healthy but notably below the current 94 percent mark. At the time, the retail market inventory totaled 33.9 million square feet (compared to 45.8 million square feet as of year-end 2017).

Construction in 2007 added 3.5 million square feet of new space, increasing the inventory by more than 10 percent. By comparison, 2017’s total retail construction of approximately 360,000 square feet represents less than 1 percent of the total retail inventory.

David Nicolson, Weitzman

David Nicolson, Weitzman

The current annual level of retail construction is also the lowest since 2011, when 301,000 square feet was added to the market.

The market’s existing retail centers benefit from this low-construction environment. The lack of new space drives leasing demand for existing vacancies in the market.

Examples in Action

Examples of this existing-center dynamic abound throughout San Antonio.

When regional superstore retailer Bob Mills Furniture looked for a great site for its first area location, it found it in a former Target vacancy at regional-draw center Fiesta Trail, located at De Zavala Road and Interstate 10.

Other key concepts that are expanding by absorbing vacancies in the current market include:

  Old Navy, which opened a new store in Alamo Ranch Shopping Center, a large regional-draw project, in a space formerly occupied by a national bookstore;

  Famed East Coast burger restaurant Shake Shack, which is working on its second area location at the intersection of Broadway and Mulberry, the site of a former convenience store;

    Local Mexican restaurant La Fogata, which in late 2017 opened in a freestanding, second-generation restaurant space at Dominion Ridge, a specialty retail-mixed-use project at IH-10 West at Dominion Drive;

Overall retail leasing activity is strong in San Antonio, but in particular for restaurant and entertainment users like Mexican eatery La Fogata.

Overall retail leasing activity is strong in San Antonio, but in particular for restaurant and entertainment users like Mexican eatery La Fogata.

• Saltgrass Steakhouse, which opened in late 2017 in a former Texas Land & Cattle location on NE Loop 410 near North Star Mall;

  H&M, which opened its fourth area location in 20,000 square feet at Rolling Oaks Mall, located on N. Loop 1604 at Nacogdoches Road;

  Chipotle Mexican Grill, which opened a new location at a former Carl’s Jr. at Alamo Ranch. Chipotle also opened a location in late 2017 at U.S. Highway 281 N and Bitters Road.

In terms of new space, grocery construction led the pack. H-E-B, our leading grocer by market share, worked to expand its footprint in growing areas.

The approximately 360,000 square feet of new construction during 2017 represents a significant decline, especially when compared to the 1.2 million square feet of new space that was added in 2016.

One key factor that resulted in higher development in 2016: Walmart was completing a major market expansion that added a number of new stores.

Current Outlook

In terms of construction, 2018 appears to be another year of extremely limited deliveries. Few if any major projects are on the books, although international grocer Lidl may open multiple locations in the metro area. However, although the grocer has committed to sites, no timetables for store openings have been announced at this time.

Activity will ramp up in a big way in 2019 with major projects like The Shops at Dove Creek, planned for a site at Potranco Road and Loop 1604 on the city’s west side. The project could deliver as much as 500,000 square feet of retail space.

Most notably, 2019 will also be the year that South Texas gets its first location of famed international retailer IKEA.

IKEA will serve as the anchor tenant for Live Oak Town Center. This project will bring more than 800,000 square feet of retail space to an 111-acre site at the southwest quadrant of Interstate 35 and Loop 1604 in the northeastern suburb of Live Oak. Completion of the 300,000-square-foot IKEA store is currently slated for spring 2019.

In addition to IKEA, the development includes an additional 530,000 square feet of anchor and shop space. The site was selected due to its super-regional customer draw, and in particular its location, access and incredible peripheral retail.

Considering the healthy balance between supply and demand and  nationally ranked economy that exists in San Antonio today, we expect steady and healthy retail market performance in 2018 and beyond.

— By Michael Schoenbrun, San Antonio City Partner, Weitzman, and David Nicolson, President of San Antonio Office, Weitzman. This article first appeared in the March 2018 issue of Texas Real Estate Business magazine. 

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