SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly …...SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly Market...

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HOUSTON | AUSTIN | SAN ANTONIO 0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0% -1 0 1 2 3 4 5 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Millions (SF) Net Absorption Completions Vacancy Supply & Demand www.naipartners.com/sanantonio EXECUTIVE SUMMARY Vacancy at 6.9% The San Antonio industrial market’s overall vacancy rate was up 50 basis points quarter-over-quarter at 6.9%, although up only 10 basis points year-over- year. Class A space ended the first quarter at 16.7% vacancy, up from 14.5% this time last year, based on a total inventory of 14.7 million sq. ft. in 82 existing industrial properties. In addition, overall net absorption went into the red, totaling negative 323,000 sq. ft., down from 1.1 million sq. ft. this time last quarter. There is 5.3 million sq. ft. under construction, with 40% available. Triple net average monthly asking rents registered at $0.50 per sq. ft. in the first quarter, level with this time last quarter and last year. Economic indicators The Federal Reserve Bank of Dallas reported that San Antonio’s economy grew at a stable pace in February. The San Antonio Business-Cycle Index continued to expand above its long-term average. The unemployment rate declined slightly, and job growth remained steady at a healthy pace over the three months through February. Wages continued to climb, and home sales prices fell. While most data have not captured the impact of the coronavirus outbreak, recent stock prices of San Antonio-based companies show moderate recoveries following sharp declines in February and early March. SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly Market Report APRIL 2020 Market Indicators Current Q1 2020 Prior Quarter Q4 2019 Year Ago Q1 2019 Vacant Direct 6.5% 6.1% 5.8% Vacant Total 6.9% 6.4% 5.9% Available Direct 9.5% 8.7% 8.3% Available Total 10.0% 9.1% 8.6% Net Absorption (SF) -322,683 1,078,243 682,348 Leasing Activity (SF) 1,313,073 1,761,227 1,481,821 Construction (SF) 5,339,691 5,158,055 5,956,219 Deliveries (SF) 219,652 681,095 741,267 Avg Asking Rent (NNN) $0.50 $0.51 $0.51 Inventory (SF) 123,420,860 123,201,208 119,405,032

Transcript of SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly …...SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly Market...

Page 1: SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly …...SAN ANTONIO INDUSTRIAL | Q1 2020 Quarterly Market Report APRIL 2020 Market Indicators Current Q1 2020 Prior Quarter Q4 2019 Year Ago

HOUSTON | AUSTIN | SAN ANTONIO

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Supply & Demand

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EXECUTIVE SUMMARYVacancy at 6.9%

The San Antonio industrial market’s overall vacancy rate was up 50 basis points quarter-over-quarter at 6.9%, although up only 10 basis points year-over-year. Class A space ended the first quarter at 16.7% vacancy, up from 14.5% this time last year, based on a total inventory of 14.7 million sq. ft. in 82 existing industrial properties. In addition, overall net absorption went into the red, totaling negative 323,000 sq. ft., down from 1.1 million sq. ft. this time last quarter. There is 5.3 million sq. ft. under construction, with 40% available. Triple net average monthly asking rents registered at $0.50 per sq. ft. in the first quarter, level with this time last quarter and last year.

Economic indicators

The Federal Reserve Bank of Dallas reported that San Antonio’s economy grew at a stable pace in February. The San Antonio Business-Cycle Index continued to expand above its long-term average. The unemployment rate declined slightly, and job growth remained steady at a healthy pace over the three months through February. Wages continued to climb, and home sales prices fell. While most data have not captured the impact of the coronavirus outbreak, recent stock prices of San Antonio-based companies show moderate recoveries following sharp declines in February and early March.

SAN ANTONIO INDUSTRIAL | Q1 2020

Quarterly Market ReportAPRIL 2020

Market Indicators

Current Q1 2020

Prior Quarter Q4 2019

Year Ago Q1 2019

Vacant Direct 6.5% 6.1% 5.8%

Vacant Total 6.9% 6.4% 5.9%

Available Direct 9.5% 8.7% 8.3%

Available Total 10.0% 9.1% 8.6%

Net Absorption (SF) -322,683 1,078,243 682,348

Leasing Activity (SF) 1,313,073 1,761,227 1,481,821

Construction (SF) 5,339,691 5,158,055 5,956,219

Deliveries (SF) 219,652 681,095 741,267

Avg Asking Rent (NNN) $0.50 $0.51 $0.51

Inventory (SF) 123,420,860 123,201,208 119,405,032

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MARKET OVERVIEWNew supply outpaces demand

The San Antonio industrial market has grown to 123.4 million sq. ft., expanding the metro’s inventory by 12.3% or 13.5 million sq. ft. in the last five years. The amount of industrial space delivered to the market during Q1 2019 was 220,000 sq. ft., compared to the quarter’s -323,000 sq. ft. of net absorption—a much wider margin than was seen last quarter. Net absorption is the measure of total square feet occupied in existing buildings, (indicated as a Move-In) less the total space vacated (indicated as a Move-Out) over a given period. The Q1 2020 negative net absorption was comprised almost entirely of warehouse/ distribution space at negative 345,000 sq. ft., positive 1,400 sq. ft. of flex space, and positive 21,300 sq. ft. of manufacturing space.

The coronavirus outbreak

With a considerable amount of the economic growth of the San Antonio metro tied to the leisure and hospitality job sector, growth will likely suffer across the Alamo City. The path both the San Antonio economy and its industrial market sector take will depend on how widely the virus spreads and how long social distancing needs to be maintained. Prior to the coronavirus outbreak, San Antonio had strong economic momentum, and the current statistics largely reflect the environment before the pandemic. San Antonio’s industrial market remains healthy, though a large amount of speculative development has recently delivered, resulting in higher vacancy rates than the historical average.

Robots that kill germs

Xenex Disinfection Services makes robots that kill germs with pulses of ultraviolet light—welcome technology during the coronavirus pandemic. Similar technology is apparent at Plus One Robotics, a startup located at Port San Antonio that makes software and equipment that gives warehouse robots advanced vision capabilities to navigate their way around. As millions of Americans are instructed to stay home, warehouse owners are struggling to keep up with deliveries, making the above-mentioned suppliers in high demand. As the number of Americans out of work has grown and the number of endangered small businesses across the country escalating, the chaos has also created an opening for automation firms, moving their growth into high gear. With a rush of orders coming in for its germ-killing robot, Xenex has had to re-configure and expand its manufacturing space, both to keep up with demand and to maintain social distancing for its 125 employees. The company has increased its manufacturing space from 12,000 sq. ft. to 15,000 sq. ft., and it’s added a second production line. Before the coronavirus crisis, Xenex’s customers included well-known MD Anderson Cancer Center in Houston and the Mayo Clinic in Minnesota. Hospitals and clinics were the company’s foundation and will most likely continue to be.

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Net Absorption

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SAN ANTONIO INDUSTRIAL | Q1 2020

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Investment sales activity

Real Capital Analytics data reports the first quarter sales volume for San Antonio industrial properties was $156.4 million compared to first quarter 2019 at $92.3 million. The primary capital composition for buyers in Q1 2020 was made up of 54.5% private investors, and 26.8% REIT/listed. For sellers, the majority was 65.1% private and 21.1% user/other investors.

Two industrial properties in Schertz sold

During the coronavirus pandemic, private investor S&B Detrick LP has purchased the FedEx Freight facility in Schertz, for $25.7 million. The FedEx Freight facility is located at 7012 Farm-to-Market Road 3009, about 18 miles northeast of San Antonio. The 101,000-sq.-ft. facility was acquired from a California-based private investor in a 1031 exchange, according to Stan Johnson Co., which brokered the deal on behalf of the seller. The facility, which sits on nearly 33 acres, was originally built in 1995 as a 77,000-sq.-ft. build-to-suit for FedEx and was later expanded. Also, in Schertz, Titan Development Real Estate Fund 1 has sold Building 1 at Titan Industrial Park to Dalfen Industrial. The 187,674-sq.-ft. property was built on a speculative basis facing Interstate 35 between Nacogdoches and Lookout Road. During the course of the coronavirus pandemic, it has become evident that maintaining emergency items is not only vital now, but will continue to be so on a permanent basis going forward. To satisfy customer demand, the construction and lease up of logistics and distribution properties for last mile delivery will only further increase as these current events transform the industrial sector for many years into the future.

Leasing activity

The volume of square footage signed during the first quarter was at 1.3 million sq. ft.—down from the previous quarter’s 1.8 million sq. ft., although ecommerce and logistics activity continue to be strong in San Antonio. A significant lease signed in Q1 2020 is the Dollar General deal signed for the 285,476 sq. ft. warehouse in the Northeast submarket at 5505 Kaepa Court, which will begin in early May. Provender Partners bought the distribution center formerly owned by Ben E. Keith Co. in May 2019.

Rent

San Antonio’s industrial market vacancy rate sits at 6.9% as of Q1 2020. With additional space likely coming available in San Antonio, larger industrial tenants will arguably have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. Disruptions from COVID-19 will also have an impact on commercial real estate landlords and tenants as difficult decisions are made to adapt to these sudden changes. Many small tenants—particularly retail tenants—have seen revenue drop 50% to 100% in some cases and simply can’t pay their rent. For companies that qualify, the CARES Act recently passed by Congress provides at least two months’ rent and wage relief for companies of 500 employees or less; landlords—many of which are also struggling, as they receive multiple rent relief requests while still having to pay property expenses and mortgage payments—expect tenants who are able to do so to apply for these funds in order to pay rent.

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SAN ANTONIO INDUSTRIAL | Q1 2020

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MARKET OVERVIEWSubmarket Stats

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Submarket Statistics Inventory (SF)

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San Antonio Market Total 123,420,860 6.9 10.0 -322,683 -322,683 219,652 219,652 5,339,691 0.50

Flex 12,117,523 8.1 11.3 1,362 1,362 16,250 16,250 116,250 0.89

Manufacturing 24,914,696 3.0 6.7 21,298 21,298 0 0 1,026,163 0.40

Warehouse/Distribution 86,388,641 7.8 10.7 -345,343 -345,343 203,402 203,402 4,197,278 0.46

Submarket Statistics Inventory (SF)

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Total Avg Asking Rent ($//MO/PSF)

CBD Total 3,294,670 1.3 2.7 200 200 0 0 0 0.50

Flex 456,128 2.9 2.9 200 200 0 0 0 -

Manufacturing 866,325 0.0 0.0 0 0 0 0 0 -

Warehouse/Distribution 1,972,217 1.6 3.8 0 0 0 0 0 0.50

Comal County Total 14,823,767 9.5 11.2 -187,755 -187,755 203,402 203,402 267,288 0.44

Flex 418,886 4.8 16.7 -18,150 -18,150 0 0 0 0.96

Manufacturing 3,143,613 7.4 7.4 0 0 0 0 0 0.38

Warehouse/Distribution 11,261,268 10.3 12.1 -169,605 -169,605 203,402 203,402 267,288 0.46

Guadalupe County Total 10,517,587 2.4 3.8 -64,584 -64,584 0 0 311,715 0.49

Flex 244,807 5.7 11.6 7,303 7,303 0 0 0 1.17

Manufacturing 4,530,440 1.6 2.7 0 0 0 0 300,000 0.53

Warehouse/Distribution 5,742,340 2.9 4.4 -71,887 -71,887 0 0 11,715 0.48

North Central Total 14,265,831 7.5 10.1 -33,813 -33,813 0 0 16,250 0.73

Flex 3,630,591 9.1 9.5 -18,814 -18,814 0 0 16,250 0.92

Manufacturing 1,606,321 6.7 12.6 41,376 41,376 0 0 0 0.52

Warehouse/Distribution 9,028,919 6.9 9.9 -56,375 -56,375 0 0 0 0.67

Northeast Total 38,075,748 9.0 13.9 -102,873 -102,873 16,250 16,250 1,246,335 0.45

Flex 2,368,952 8.9 17.1 -23,302 -23,302 16,250 16,250 86,000 0.74

Manufacturing 5,121,773 1.8 13.5 28,834 28,834 0 0 576,163 0.38

Warehouse/Distribution 30,585,023 10.0 13.7 -108,405 -108,405 0 0 584,172 0.45

Northwest Total 19,143,707 4.8 6.5 -19,953 -19,953 0 0 670,310 0.65

Flex 4,652,857 7.3 9.5 56,446 56,446 0 0 14,000 0.94

Manufacturing 2,934,556 4.7 5.7 -51,012 -51,012 0 0 0 0.38

Warehouse/Distribution 11,556,294 3.8 5.6 -25,387 -25,387 0 0 656,310 0.54

South Total 23,299,550 5.9 9.4 86,095 86,095 0 0 2,827,793 0.40

Flex 345,302 0.7 18.1 -2,321 -2,321 0 0 0 0.61

Manufacturing 6,711,668 1.7 3.5 2,100 2,100 0 0 150,000 0.45

Warehouse/Distribution 16,242,580 7.7 11.5 86,316 86,316 0 0 2,677,793 0.39

SAN ANTONIO INDUSTRIAL | Q1 2020

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SAN ANTONIO INDUSTRIAL | Q1 2020

Quarterly Market ReportJANUARY 2020

Information and data within this report were obtained from sources deemed to be reliable. No warranty or representation is made to guarantee its accuracy.

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MARKET OVERVIEWSan Antonio Industrial Submarkets

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Quarterly Market Report

Leta WausonDirector of Research

[email protected] 713 275 9618

NAI Partners San Antonio Office 1020 NE Loop 410, Suite 810 San Antonio, Texas 78209

tel 210 446 3655

www.naipartners.com/sanantonio

SAN ANTONIO INDUSTRIAL | Q1 2020