San Antonio

The San Antonio economy has stabilized at a normal level, after a three-year boom that satisfied pent-up demand in multifamily and single-family housing and shopping centers.

Population and job growth remain high, each increasing at about 20,000 a year since 1993, for a job-creation rate of more than 3%.

"The market is strong," says Darren Casey, president of Baxter Southwest Corporate Realty Services, San Antonio. "We have a tight real estate market in all sectors. We don't have the pent-up demand like we have had, and I think we've reached an equilibrium between supply and demand."

The local economy has bounced back from two blows: devaluation of the Mexican peso that curtailed retail and tourist trade from Mexico in early 1995 and the June 1995 decision to close Kelly Air Force Base, the city's largest employer, by the year 2001.

Mexico's economic troubles, however, have not stopped manufacturers and distributors from positioning themselves to take advantage of NAFTA. An example is MSAS Cargo International's 208,000 sq. ft. logistics center opened in August 1995 to process AT&T telecommunications equipment headed for Mexico.

"[San Antonio] is experiencing real positive growth," says Casey. "We are well-positioned next to Mexico, and that has helped."

The Kelly impact has been softened by a Pentagon plan to recruit private contractors to take over military aircraft maintenance at the base, hiring from the present workforce.

In addition, local officials plan to redevelop part of the base as an international intermodal distribution center, using existing runways, rail lines and 4.4 million sq. ft. of warehouses. Both plans will unfold over the next five years.

New employers continue to move to San Antonio, drawn by low costs of doing business, the central U.S. location and proximity to Mexico.

Recent announcements include Japanese auto parts makers Takata Seat Belts Inc., with a new factory and U.S. divisional headquarters, and a Mitsui San Antonio Components Inc. aluminum die casting plant.

Also, BABN Technologies Inc. of Montreal is considering a 120,000 sq. ft. build-to-suit lottery ticket printing plant and office. A Midwestern bank is looking for a regional headquarters site, adding to the growing presence of back-office operations of major financial companies and retailers. And Capital Group Cos. Inc., the nation's third-largest mutual funds manager, this year will start a 285,000 sq. ft. customer service center, replacing leased space.

On the drawing board is Diamond Shamrock Corp.'s 200,000 sq. ft. corporate headquarters, also replacing leased space.

Tightening office forces new construction

Class-A office and industrial space is tight, forcing many expanding companies to construct new owner-occupied or build-to-suit facilities.

"Office is very tight," says Casey. "We are starting to see office buildings being built." His company is building the first office building to be built in the area in 10 years, the Trail Crest office building.

However, office rents, though rising, have not yet reached the $18 per sq. ft. required to support major new multitenant construction.

Suburban buildings accounted for 1.7 million of the city's 2 million sq. ft. of gross office leases in 1995 and 325,000 of 358,000 sq. ft. of net absorption, as downtown buildings were hit with corporate downsizing, Baxter Southwest reports.

Average rents in Class-A offices citywide rose to $15.60 at the end of 1995 from $14.10 in 1994, while vacancy held almost steady at 8.9%, Baxter Southwest reports.

Overall office vacancy fell to 14% from 15.6% a year earlier, pushing average rents to $12.47 from $11.74.

Industrial market on the rise

Industrial space is even tighter, although spec construction resumed two years ago and is continuing.

"We are seeing bulk warehouses being built," says Casey, "and some of them are speculative."

Vacancies in Class-A industrial space stood at 9% at year-end 1995, down from 12% in 1994 and the lowest since the mid-1980s, Aequus Real Estate Services reports.

For prospective tenants, "there's not a whole lot to look at," says Joe Carroll of Aequus.

Average rents for bulk warehouse rose 14% to $3.50 during 1995, according to Grubb & Ellis Co. which forecasts an 8% to 10% increase this year.

Available manufacturing space shrunk because of record absorption and user purchases, pushing rents up 30%, Grubb & Ellis reports. Prices for industrial land rose 63% to $1.21 per sq. ft. during 1995.

Grubb & Ellis predicts that demand will exceed supply again this year. More than 600,000 sq. ft. of new industrial space came on line in 1995 and 400,000 sq. ft. will be completed this year. Most will be Security Capital Industrial Trust's addition of 169,000 sq. ft. at Perrin Creek Corporate Center and 152,000 sq. ft. in Coliseum Distribution Center.

Retail reinvents its image

In retail, the city absorbed more than 1.5 million sq. ft. in 1995, about 1 million of it in new power centers, Grubb & Ellis reports.

"Retail is good overall," says Casey of Baxter Southwest, who is developing the Concourse Shopping Center in San Antonio.

Shopping center vacancy dropped to 10.9% from 14.9% in 1994, while average rents ranged from $8.27 to $10.06, up about $1 in many locations, according to Grubb & Ellis.

Developers expect the six power centers now being completed to house the last big boxes for awhile. The new wave is higher-end centers featuring themes, entertainment and "interactivity" between customers and merchandise.

Two examples, neither of which has announced anchor tenants, are Trammell Crow Co.'s 530,000 sq. ft. Alamo Quarry Market in Lincoln Heights and Jaffe Group's 400,000 sq. ft. Huebner Oaks Commons at Interstate 10 and Huebner Road, in the city's hottest retail corridor.

"How much people (will) enjoy the experience" of shopping will determine which projects actually get built, says Bob Barnes, Trammell Crow managing director.

Other centers that are expected to begin this year are Albertsons four supermarket-anchored centers, which will break ground this year.

Tourism heats up hotel market

The city's strong tourism industry generated about 2,000 new hotel rooms, mostly in budget categories, in 1995.

PKF Consulting counted 3,200 future rooms proposed for downtown alone, including a $43 million Adam's Mark planned by HBE Corp. in the renovated NBC Bank Tower and Alamosa/HILP Associates' $37 million Westin Hotel on the Riverwalk.

A $184 million Convention Center expansion also is scheduled to start this year, which will attract an additional 1,000-room convention hotel in the next five years.

Outside downtown, developers are putting together resort hotels at La Cantera Golf Course and The Quarry golf course in Lincoln Heights.

Multifamily market slows

Apartment construction came to a halt in mid- 1995, after 4,600 units were started in the previous 18 months. Two small high-end complexes, Embrey Partners' The Meridian and Callaway Development Corp.'s The Vintage, renting at about $1 per sq. ft., were late-1995's only new projects.

International [CQ] Realty Inc.'s 160-unit La Calera, priced at $0.80, is the only multifamily start so far in 1996.

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