Demand for warehouse and distribution space in San Antonio has pushed up asking rates even as construction on new development within local industrial parks is outpacing anything seen in the past several years.
A quarterly market review recently released by commercial real estate firm CBRE shows increased demand for warehouse and distribution space has forced asking lease rates up 20 cents per square foot over last year at this time.
A total of 19 projects totaling over 2.6 million square feet is underway, with two breaking ground during the third quarter and several more projects expected to be completed in 2019.
Growth in e-commerce is only one factor in the demand and rising rates, said Rob Burlingame, first vice president in CBRE’s San Antonio office.
“It’s kind of twofold,” he said. “We’re seeing core distribution tenants growing and expanding, and even new tenants coming into San Antonio. Demand is going to push rates.”
The other market force involves historically low vacancy in San Antonio. “A lot of new demand is pushing into new [developments], and newer buildings have higher rates than existing ones,” Burlingame said.
In addition, since most products coming into San Antonio originate in Mexico, San Antonio’s proximity to Laredo, the largest international port of entry in the country, is also part of the story. The distance between the two cities allows distributors to make two round trips within a day or less. “So that’s driving demand on the distribution side,” he said.
Thus, most of the new warehouse space being built is along the North Interstate 35 corridor between San Antonio and New Braunfels, and where Interstate 10 intersects with Loop 410 in the Southeast. The other hotspot, Burlingame said, is at Eisenhauer Road and I-35.
Both large and small developers are building new space in industrial parks such as Cornerstone Business Park on Dietrich Road and Tri-County Industrial Park in Schertz. Most warehouse spaces are built on a speculative basis with no identified tenant lined up.
“There’s been steady growth along the corridor for the last two to three years,” Burlingame said, and renegotiation of the landmark North American Free Trade Agreement in recent years only served to create hesitancy, and no real slowdown, he said.
While some manufacturers and importers have warned that ongoing slowdowns at border crossings will drive up costs on consumer goods, Burlingame said crossings have been slow “for years.” Distributors are managing the flow of commerce by dropping their loads in Laredo or McAllen before shipping on to San Antonio and Dallas.
The bottom line for San Antonio is there’s been significant development the last few years with steady or decreasing vacancies. “Adding as much square footage as we have the last three years, and not driving vacancy high, that’s telling us the demand is still there.
“There’s a lot of stability in the market, and in the demand. San Antonio is a good place to be right now.”