There is no doubt that Walmart is the dominant force driving growth in the San Antonio area right now. San Antonio-area shoppers gained four new Walmart Supercenters in 2013, five more are nearing completion and scheduled to open in the next few months, and two or three more are expected to break ground later this year.
At the same time, two new Sam’s Club stores will be opening in the first quarter, and Walmart’s new Neighborhood Market concept stores are slated to debut in the area this year with three locations already announced and more expected.
Meanwhile, speculative development has remained very limited, but two new projects — both located in the Northwest sector — were delivered in the final quarter of 2013. Although not huge projects, these two new centers mark the delivery of San Antonio’s first sizeable speculative retail properties in over a year.
One of these developments was Helotes Town Centre, which serves as an example of growth stimulated by the adjacent Walmart that opened earlier in the year. Pre-leasing activity in the 50,000-square-foot Helotes center includes Great Clips, Cash Store and Marco’s Pizza.
Elsewhere, Dominion Ridge is a two-story retail project located along the I-10 corridor outside Loop 1604 at Dominion Drive. The 56,844-square-foot project, which sits adjacent to an existing CVS Pharmacy and Chase Bank, came online with a tenant line-up that includes two restaurants (Silo and Aldaco’s), as well as Salons by JC, First American Title, Toy Zone, Cuppencake, Neva Face & Body and Moda Bébé.
Pre-leasing activity at the newly completed projects, along with other new leases and expansions inked between the first of October and the end of December of last year, generated 164,904 square feet of positive net absorption in the fourth quarter, according to the survey of nearly 47 million square feet of retail lease space across the greater San Antonio area. Leasing activity was led by Planet Fitness (20,000 square feet), which filled a portion of the former H-E-B space at Olmos Creek Shopping Center in the North Central sector.
Activity in the Northwest sector included DSW Shoes (18,620 square feet) and Ulta Beauty (12,600 square feet) at Ingram Festival and Texas Entertainment Bingo Hall (16,944 square feet) at the Great Northwest Shopping Center. In the Far North Central sector, Petco inked a lease for 12,500 square feet at the Village of Stone Oak, and in the South, Mission Crossing Center landed a new restaurant called Bamboo City (9,424 square feet).
The fourth quarter gain pushed the year-end total absorption figure to 391,862 square feet.
Talking Numbers
With little new product to offset net gains, the San Antonio retail real estate market vacancy rate dropped to 10.3 percent in the fourth quarter of 2013, down from 10.7 percent recorded in the previous quarter and substantially improved compared to 11.7 percent recorded in the same quarter the previous year. In fact, the San Antonio retail market vacancy is the lowest it has been since the third quarter of 2005.
The average quoted rental rate for San Antonio retail space ended the fourth quarter at $16.60 per square foot per year on a triple-net basis, up 37 cents over the previous quarter and 81 cents compared to the same quarter the previous year, making for a noticeable annual increase of 5.1 percent.
Of course, vacancy and rental rates vary by location and product type. On a year-over-year basis, citywide average rents increased across the board, and all retail property types either maintained or improved vacancy rates. Power centers, for example, experienced 63,936 square feet of positive net absorption in the fourth quarter, which tightened vacancy to 5.9 percent, compared to 6.4 percent recorded last quarter and stable compared to 5.8 percent recorded a year ago. In the Northwest sector specifically, vacancy within power centers stands at an incredibly tight 2.2 percent.
Vacancy within the community center category closed the year with a citywide vacancy rate of 9.5 percent, which is improved compared to 11.5 percent recorded in the fourth quarter of 2012.
Vacancy with area neighborhood centers remained stable at 16.1 percent — unchanged over the previous year — while strip centers saw the greatest improvement of all subsectors, with vacancy dropping to 11.6 percent, compared to 16.9 percent recorded in the same quarter a year ago.
Future Growth
After remaining relatively slow for most of 2013, investment activity picked up in the last few months of 2013. A partnership between USAA Realco and Cencor Realty purchased the H-E-B anchored Culebra Market Shopping Center (232,126 square feet), which is located at the intersection of Loop 1604 and Culebra Road.
HAPES Properties, an affiliate of Kotel Investments, purchased two centers including Judson Plaza (18,750 square feet) and Bell North Business Center (20,400 square feet) in the Northeast sector. Another significant transaction was World Class Capital Group’s purchase of Culebra Crossing (142,740 square feet).
Looking ahead, the pipeline of new construction will continue to be dominated by big-box retailers, led by Walmart. The discount giant plans to break ground on an 180,000-square-foot Supercenter at Singing Hills — a 250-acre mixed-use, master-planned community in near U.S. 281 and Highway 46 in the suburb of Bulverde — and another 189,000-square-foot store at the corner of Borgfeld Road and Cibolo Valley Drive in Cibolo.
H-E-B will also bring a new store to the intersection of Hardy Oak Boulevard and Wilderness Oak in the far north community of Stone Oak. The grocer has also announced plans to replace its oldest San Antonio store with a new two-story supermarket at 1601 Nogalitos St., just north of Highway 90 on the city’s south side.
In the Northeast sector, Garden Ridge Pottery is nearing completion of a new store at Gateway Plaza, which is located at Loop 1604 just west of Interstate 35. In the Northwest sector, TopGolf announced plans to deliver its 65,000-square-foot facility to the intersection of I-10 West and Loop 1604.
“Improved vacancy and steadily rising rental rates will prompt plans for more speculative retail with new Walmart store locations providing shadow-center growth opportunities, but developers will likely remain cautious and seek to land anchor tenants prior to kicking off construction,” says Brian Harris, senior vice president and partner with REOC San Antonio.
Such was the case with the most recent groundbreaking — that of Sonterra Village, located at the northwest corner of Loop 1604 and Sonterra Place. Trader Joe’s will open its second San Antonio store and be joined by additional retail and restaurants at the property.
Lastly, activity reported late in the fourth quarter is bringing new retailers to the market, such as H&M to fill 27,000 square feet at The Shops of La Cantera and Dick’s Sporting Goods to fill 50,000 square feet in the former Mervyn’s space at South Park Mall. These deals and others like them will help carry momentum into the first quarter of 2014.
— By Kim Gatley, Senior Vice President and Director of Research, REOC San Antonio. This article originally appeared in the April issue of Texas Real Estate Business magazine.