Mark Drumm, Stratford Land
San Antonio remains a strong growth market. While not receiving as much national attention as its sister metro areas of Dallas/Fort Worth, Austin and Houston, the San Antonio area gained over 25,000 new jobs last year. The growth is concentrated in tourism, conferences, military and business support services.
San Antonio’s growth is expected to remain strong over the next two years and should continue to drive demand for housing throughout the metro area. Local unemployment remains low at 3.8 percent, almost two points below the national average of 5.6 percent.
Unemployment is forecasted to remain well below 5 percent over the next five years, according to Moody’s Analytics. However, with per-capita income at $42,000, about 10 percent below the national average, and with lower paying service jobs, San Antonio remains an affordable market for most real estate — particularly residential, which consumes the most land.
At Stratford Land we invest in and lend on land for development across the faster growing metropolitan areas in the Sunbelt from the Carolinas to Southern California. Therefore, we either have the opportunity, or burden, of staying abreast of the fundamentals driving demand in all product types — residential and commercial.
Phillip Wiggins, Stratford Land
In looking to invest, we study the market, demographic, migratory and employment growth patterns associated with each specific metropolitan area to determine where demand is likely to drive the need for new real estate. In most metropolitan areas these growth areas follow long-standing patterns, first driven by physical land constraints and then by historical preferences.
These non-geographically driven growth areas typically follow a concentration of higher-value executive housing around higher-income employment. Absent a metropolitan area’s growth sprawling to encounter some new geographic or political barrier, historical patterns rarely shift. In some instances, specific product types represent select opportunities for real estate development related to unique geographic-centered employment growth or required infrastructure.
Examples might include transportation assets like railroads, ports or highways that support distribution facilities. Oil and gas employment associated with the Eagle Ford Shale, south of the city, might be an instance of employment unique to a specific location.
Growth Patterns
In San Antonio, the conventional growth patterns primarily head northward following I-10 and U.S. 280 toward the hill country, spreading across the northern tier of the metropolitan area following Loop 1604.
As these areas become more constrained by both access to infrastructure and topographical development constraints, the growth should spread northwest towards Boerne and northeast towards New Braunfels and San Marcos. Single-family home construction has followed a similar pattern. Builders in San Antonio started constructing approximately 6,100 single-family houses in 2014.
The metro area is forecasted to start almost 8,300 singlefamily homes in 2015 and over 62,000 over the next five years. That’s an average of more than 12,500 annually, according to Moody’s. Median home prices continued to rise in 2014, rising above $180,000 for the first time.
They should continue to rise modestly over the next few years. With a lower household income, low interest rates and accommodative mortgage underwriting will be necessary to achieve these forecasts. In the apartment market, 2014 was an incredible year for San Antonio. According to CBRE Econometric Advisors, there were over 6,000 new units delivered market-wide.
This incredible pace should slow by approximately half annually over the next five years. However, a drop to 3,000 units per year should not be anything to cause concern. Not surprisingly, over 52 percent of 2014 completions were on the northern tier.
This trend should continue — driven by both continued employment growth in these outlying but growing employment cores, and the volume of growth in units around the University of Texas at San Antonio. Tremendous growth in enrollment there has driven high demand for student housing. Over the next two years, the northern submarkets will closely maintain their market share at 48 percent. Metro-wide, an estimated 9,000 units will come online over the next three years.
Vacancy is currently at 6.8 percent according to CBRE. This is up ever so slightly due to the high level of new unit deliveries in 2014. But with more moderate growth looking forward, the vacancy rate should stabilize to around 6 percent over the next five years.
San Antonio should continue to experience good, but more moderate, growth. While the influence of oil and gas does affect San Antonio, it is minor compared to Houston. If energy prices remain low, long-term they will begin to affect growth statewide. Without any unforeseen events that affect economic growth nationally, San Antonio should remain a robust environment for carefully planned, market-driven real estate — both residential and commercial.
— My Phillip Wiggins, CEO, and Mark Drumm, Chief Risk Officer, Stratford Land. This article originally appeared in the April 2015 issue of Texas Real Estate Business Magazine.