San Antonio's Industrial Market Turning

SAN ANTONIO-The industrial market is getting close to the bottom and should begin a turn-around, according to a report from Grubb & Ellis Co.’s San Antonio office. That means many building owners could get through the economic downturn without suffering too greatly on lower rents.

“The trends are getting close to the bottom,” says Shawn Martin, research analyst for Grubb & Ellis in San Antonio. Citywide vacancy was 17.1%, down from 18.1% at the end of the first quarter. Rents for warehouse distribution space increased 11 cents per sf per year to $3.46 per sf while flex space rents dropped 11 cents per sf per year to $8.97 per sf. Few building owners offered concessions.

The rents held firm even as the city’s industrial strongholds of the northeast and north-central submarkets were “hemorrhaging” tenants in the second quarter, according to the Grubb & Ellis report. Negative absorption was 94,641 sf in the quarter and almost 43,000 sf in the northeast submarket. The northeast submarket, the city’s largest industrial area with 24 million sf, had a 13.1% second-quarter vacancy and the north central had an 8.8% rate.

The worst may be over for those submarkets. “Those two areas are usually the strongest and should start picking up in the next quarter,” Martin tells GlobeSt.com.

While citywide absorption was positive for the second quarter, most of it was due to big leases signed at KellyUSA, the former Air Force base that’s now private-sector property, according to Martin. Second-quarter leases will fill about 320,000 sf. Tenants included Chep USA, Adtech Systems Inc. and Durrset Properties.

With a total of 4.4 million sf and aviation-oriented amenities, KellyUSA appeals to a certain kind of tenant that the rest of the San Antonio market doesn’t necessarily compete for, Martin says. For example, the Air Force Medical Logistics office plans to move into nearly 250,000 sf at the former base.

Still, three-quarters or 3.3 million sf of KellyUSA is empty, accounting for about a third or 9.2 million sf of San Antonio’s total vacant industrial space. Martin says KellyUSA should come more into line with the city’s submarkets in two years if it continues signing leases totaling 250,000 sf every quarter. That, in turn, will help reduce the total market vacancy rate closer to where it was, about 12%, before KellyUSA was privatized.