San Antonio Multifamily Market Report – September 2023
San Antonio Apartment Market Cools Quickly, Yet Demand Remains Steady
The San Antonio market has been among the weakest performing MSAs in the nation over the past year, as a once hot apartment market has turned negative quickly. All key indicators lag the national average and are also negative on both short and long-term bases. Traditionally a stable market with a heavy military influence, the San Antonio market has been a hotbed for in-migration, healthcare and tech growth in recent years. New supply and softening demand are the leading culprits to San Antonio’s recent performance, but long-term demographic projections continue to look bright for San Antonio. The I-35 corridor is one of the fastest growing regions in the country, as job growth, corporate relocation, and real estate development are thriving. In the coming decades, the Texas corridor from San Antonio to North Dallas could resemble the I-95 corridor in the northeast, with metropolitan areas growing into others, leading to one continuous metropolis.
Rent and Operating Trends
San Antonio currently maintains the lowest occupancy rate of any market in the country according to Radix Research. At 92.6%, its occupancy rate trails the second weakest market, Atlanta, by 60 basis points. Net effective rents have fallen across the MSA, both on a weekly and annual basis as of mid-August. Traffic is down, however the number of leases signed is up slightly on an annual basis and is in line with the national average. While stability and growth will eventually return to San Antonio, it may take the next few years for fundamentals to rebalance.
Traffic and Leasing
- The average property across San Antonio sees 7.5 tours per week, nearly a full tour below the average rate at this time last year.
- Leading the metro are the submarkets of Comal County and Outlying Bexar County. Both submarkets are averaging more than 10 tours per property each week, a strong pace, given the overall market demand.
- Central San Antonio is also doing fairly well from a Traffic perspective, and tours have increased in the submarket by roughly a half tour per week since last year.
- New leases signed is the strongest metric right now in San Antonio. The average property is signing nearly three new leases each week, a modest uptick from last year.
- The same three submarkets that led our traffic rankings also led the leasing rankings, and Comal County properties are averaging 4.4 new leases signed per week.
- The Northwest and Southwest submarkets, both of which are located close to the urban core, are struggling, as both submarkets are averaging fewer than two new leases signed per week.
Occupancy and ATR
- Not only is San Antonio’s occupancy the lowest in the nation, but it has fallen 2.8% over the past year.
- There are a few submarkets that are maintaining their occupancy rates, despite the slowdown across the metro. The Far Northwest submarket has an occupancy rate of 95.7%, and while occupancy has fallen more than 2% over the past year, the submarket occupancy rate has bounced back 40 basis points in the last month.
- However, 5 of San Antonio’s submarkets maintain average occupancy rates below 92%, and each has recorded at least a 2% drop in occupancy since last August. The Southwest submarket has lost a whopping 5% in occupancy in the past year.
- As expected, the number of units available to rent across San Antonio is increasing. Over the past year, the average ATR is up 40%.
- With its weak leasing and occupancy, the Southwest submarket has the most units available to rent, with the average property having 24 units available in the next 60 days.
Net Effective Rent and Concessions
- Rents have fallen 3.0% over the past year in San Antonio, but the shorter-term trend may be even more concerning. In the past month, net effective rents have fallen 2.1%.
- NER is weakest in the Far Northeast and Far West submarkets, as rents are down more than 7.5% annually in both locations.
- Most submarkets are recording year-over-year NER declines between 3-5%.
- However, not all submarkets have fallen into negative growth territory. The Airport/Northeast, Northwest, and Far Northwest submarkets have all recorded rent growth of at least 2.5% since this time last year.
- Concessions in San Antonio are up roughly 185% in the past year, and the average concession is $24 per unit per month. Not surprisingly, concessions are increasing in nearly all submarkets.
- San Antonio’s job market had been steadily growing; however the past two months have seen a sharp decline in new job formation. Between June and July, the MSA lost a combined 7,900 jobs, and marked the first time San Antonio had net job losses since early 2021.
- Job losses appear to be scattered across industries as USAA and WellMed, two major employers in the market recently experienced significant layoffs.
- As a result, the metro unemployment rate has increased to 3.9%, up 50 basis points from April.
- The combination of weakening employment fundamentals and continued apartment deliveries will weigh heavily on San Antonio’s housing market. However, I remain optimistic on San Antonio’s long-term growth potential, as in-migration continues in the Texas Triangle.
New Supply Pipeline
- Amid the challenging times for the San Antonio apartment market, more than 100 new properties are currently under construction across the metro, according to BuildCentral.
- Some new construction is concentrated in the urban core, but there is significant suburban development along the Loop 1604. Several projects are being built in the Northwest, near SeaWorld and to the north near Hollywood Park. New Braunfels is also seeing a significant number of new projects coming online in the next 6-12 months.
- When looking at the projects in planning phases, the new supply pipeline more than doubles. Many of these projects are likely to fall out or face major delays, given the current state of the interest rate market and the local apartment market, but even if some of the projects in planning are delivered, the challenges of today’s market may extend into 2024 and beyond.
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