S.A. retail market stays healthy
market insight

S.A. retail market stays healthy

By Ian Pierce, VP of Communications

San Antonio’s retail market maintained its healthy occupancy rate of 94.0 percent as of year-end 2017, thanks to steady demand for existing retail space and extremely limited retail construction.

The market’s limited retail construction was dominated by H-E-B, which opened two new stores in 2017. The locations came online either freestanding or with limited peripheral small-shop space, further tightening the market for available space.

To illustrate exactly how low new construction is, we compared the current market to a decade ago, when the economy was in a similar positive cycle.

The market’s occupancy at year-end 2007 was 91.2 percent, healthy but notably below the current 94-percent mark. At the time, the retail market inventory totaled 33.9 million square feet (compared to 45.8 million square feet as of year-end 2017).

Construction in 2007 added 3.5 million square feet of new space, increasing the inventory by 10.3 percent. By comparison, 2017’s retail construction of approximately 360,000 square feet represents less than 1 percent of the total retail inventory.

The current level of retail construction, the lowest since 301,000 square feet was added during the recession year of 2011, is extremely conservative for a market with high occupancy and a healthy overall economy.

The market’s existing retail centers benefit from a low-construction environment, since the lack of new space drives leasing demand to consider vacancies on the market.

For example, when regional retailer Bob Mills Furniture entered the San Antonio market this year, it did so by redeveloping a former Target vacancy at regional-draw center Fiesta Trail, located at De Zavala Road and IH-10. The lease absorbed a major vacancy in the process.

In terms of new space, as noted, grocery construction led the pack, followed by smaller retail projects and center expansions.

The approximately 360,000 square feet of new construction for calendar-year 2017 represents a significant decline in space deliveries compared to the 1.2 million square feet of new space added in 2016. (One key factor that resulted in higher development in 2016: Walmart was completing a major market expansion that added a number of new stores.)

In terms of construction, 2018 appears to be another year of extremely limited deliveries. Few if any major projects are on the books, although international grocer Lidl may open multiple locations in the metro area during 2018. However, although the grocer has committed to sites, no timing has been announced.

Activity will ramp up in a big way in 2019 with major projects like The Shops at Dove Creek, planned for a site at Potranco Road and Loop 1604. The project could include as much as 500,000 square feet of retail space.

Most notably, 2019 will also be the year that South Texas gets its first location of famed international retailer IKEA. IKEA will serve as the anchor for Live Oak Town Center, which will bring more than 800,000 square feet to 111 acres at the southwest quadrant of IH-35 and Loop 1604 in Live Oak. In addition to IKEA, an additional 530,000 square feet of anchor and shop space is planned by Weitzman.