By Joe Iannacone, vice president of development, Titan Development; and Rob Burlingame, SIOR, CCIM, senior vice president, CBRE
While industrial was a preferred investment vehicle prior to the pandemic, the impacts of COVID-19 have further cemented the property type’s place as the favorite asset class among investors.
Newly implemented safety precautions related to COVID-19 have accelerated established trends toward e-commerce and delivery-based shopping. The pandemic has also exposed various weaknesses in the global supply chain, spurring predictions of a return to domestic manufacturing and processing of raw material.
Joe Iannacone, Titan Development
As more consumers have yielded to the convenience that e-commerce provides, investors of all types have acknowledged the strength of industrial fundamental metrics, causing demand to spike in the process. As a result, investors have spent the past year seeking existing and new industrial development opportunities to capitalize on what many see as a trend that will likely continue.
The increased level of vaccine administration on the horizon has further accelerated this interest in industrial properties, with many experts predicting a return to somewhat normal living, working and shopping habits by the middle of 2021.
On a more micro level, one subtype of industrial real estate — cold storage — could also potentially benefit from elevated vaccine rollout. The rise in popularity of grocery store delivery services amid the public health crisis has also driven stronger demand for climate-controlled industrial space, another trend that is likely to continue for the foreseeable future.
As a result of all of these factors, as of the fourth quarter of 2020, investment attention has been largely focused on logistics, last-mile distribution, data centers and cold storage properties. All of these subcategories of industrial real estate have long-term appeal and short-term intensity of demand.
Rob Burlingame, CBRE
San Antonio has not been a stranger to these trends. According to data from CBRE, the greater San Antonio market posted positive net absorption of more than 597,000 square feet in the fourth quarter of 2020. Much of that absorbed space was located in the South San Antonio submarket.
Over the last year, this submarket posted 351,522 square feet of positive net absorption, with the volume of Class A space absorbed slightly outpacing that of Class B. This recent spike in absorption stemmed from deals involving companies such as Cuisine Solutions and Toyoda Gosei, both of which were looking to expand their footprint in the San Antonio market.
In addition, roughly 51 percent of space delivered was preleased upon completion, which caused an uptick in vacancy by 70 basis points from 14.2 percent in the third quarter to to 14.9 percent in the fourth quarter. CBRE expects this vacancy number to fall again as tenants take occupancy of those preleased spaces over the course of this year.
CBRE also anticipates that the local economy will see annual GDP growth of nearly 5 percent in 2021, with technology and goods-production services seeing the quickest paths to recovery. This activity should also benefit the San Antonio industrial sector as these users ramp up production and inventory, triggering a need for more space.
California-based home improvement retailer RH, formerly known as Restoration Hardware, recently signed a 62,000-square-foot lease at Enterprise Industrial Park, a 125-acre project that was co-developed by Titan Development and Atlanta-based Robinson Weeks. Like the rest of the country, the San Antonio industrial market has seen elevated demand from these types of users over the last year.
In terms of other submarkets, Northeast San Antonio continues to be one of the most desirable areas for industrial development. Situated along the Interstate 35 corridor, industrial parks in that area enjoy easy access to San Antonio, Austin, Houston and even Dallas.
Over the past year, the net absorption in this submarket was the second-strongest in the San Antonio MSA at 182,102 square feet, with an essentially even split among absorption of Class A and Class B space. This area will likely continue to see strong growth, as intense competition for space in Austin forces tenants to look further outside the state capital for viable distribution sites.
Both the North Central and Northwest San Antonio submarkets have seen slower absorption but still provide good opportunities for the right tenant or investor(s).
All said, industrial outperformed much of the larger San Antonio commercial real estate market in 2020. The challenges posed by the pandemic have now become opportunities as San Antonio companies re-evaluate their supply models.
From regional distribution centers and e-commerce centers to light manufacturing buildings, many local industrial tenants will be adapting modes of operating that will represent stark contrasts from metrics describing the economy at large.
— This article originally appeared in the March 2021 issue of Texas Real Estate Business magazine.