Foresite Commercial Real Estate®️

This year, we’ve reached many milestones, both big and small. As we reflected on them during our Christmas party, we couldn’t help but feel incredibly grateful for you—our clients. Your support and encouragement throughout the year mean the world to us. From all of us at Foresite, we wish you a very Merry Christmas and a Happy New Year!

As we wrap up the year, our inbound lead data reveals a few clear hotspots in San Antonio. (December will be posted next month.) The top zip codes for 2024 are: • 78216 (near Hwy 281 & Loop 410) • 78249 (near Loop 1604 & I-10 and Loop 1604 & Bandera Road) • 78233 (near Live Oak, Loop 1604 & I-35) These areas have shown consistent activity with the tightening retail market. As highlighted in our Q3 2024 MarketWire Report, the lack of new retail space has driven up demand, pushing occupancy rates to new heights. However, lower-quality properties are not seeing the same growth in rents, mainly due to increased NNN costs (primarily property taxes) putting pressure on rents. For more market data, read our Q3 2024 MarketWire Report: https://lnkd.in/gBuX5zGp

California buyers were once seen as the largest buyer segment for San Antonio's multi-tenant retail centers, but recent data reveals a different story. Locals are now the leading buyer percentage. Read more in this article by Xavier Alvarado, an Investment Sales Agent at Foresite CRE. San Antonio multi-tenant retail investment closed deals data as of October 10, 2024. Collected by Xavier Alvarado. https://lnkd.in/g4K9UqDE

Which types of tenants are expanding the most? We analyzed our incoming leasing inquiries and categorized them to better understand market trends. Excluding General Retail, which covers inquiries that don't fall into a specific category, Restaurants/Bars emerged as the top segment for expansion. The next largest category is Contingent Use, making up 10.3% of overall inquiries. This category includes liquor stores, daycares, churches, and smoke/vape/CBD shops—tenantswhich may not always be landlord-approved. Beauty ranked third for Q3, followed by Office at 7.4%, Medical at 3.5%, and Fitness also at 3.5%. For more leasing activity insights, check out our research report at foresitecre.com/marketwire.

Property inventory has nearly doubled compared to this time last year, but transaction velocity is down by half. Average asking cap rates for all properties have risen by approximately 50 basis points year-over-year. However, for newly listed properties, cap rates increased by 20 basis points in Austin and decreased by 7 basis points in San Antonio, indicating that while pricing for new listings has remained relatively stable, properties are staying on the market longer. Alexandria Tatem Foresite Commercial Real Estate Associate Vice President of Investment Sales and Head of Research

“Although the Q3 stats are just starting to show it, we have recently seen a marked increase in properties coming to the market for sale. The FED decision to cut rates in September has spurred sellers who previously were waiting on the sidelines, to enter the market in expectation of continuing future rate cuts leading to stronger asset values. We expect this trend to gain further steam in Q4 and are optimistic it will continue through 2025. “ Chad Knibbe, CCIM Foresite Commercial Real Estate Director of Investment Sales

Q3 2024 Retail Market Insights This dataset highlights Class A and B retail centers that were publicly listed during Q3 2024. In San Antonio, the average asking cap rate for multi-tenant retail properties across all sizes is 6.76%, down 2 basis points from the previous quarter. In Austin, the average cap rate for all property sizes has risen to 6.15%, up 30 basis points compared to Q2.

Central Texas Retail Market Update – Q3 2024 Investment Sales Inventory in Central Texas saw growth in Q3 2024, driven by a combination of lower interest rates and pent-up demand. In San Antonio, pricing remained stable compared to last quarter. However, in Austin, new listings and price reductions pushed average asking cap rates above 6%—the highest level since Q1 2022. Transaction activity is expected to continue gaining momentum in Q4.

The Federal Reserve's September rate cut of 50 basis points exceeded the expectations of some economists, with analysts anticipating an additional four 25-basis-point rate cuts in 2025. Lower rates are expected to drive competition among buyers, potentially pushing property prices up. Many recent transactions have been by all-cash buyers or those with strong capital reserves, planning to refinance later. Transaction volume in investment properties has been low for two years, creating pent-up demand. While some price adjustments have occurred, values have remained stable overall. Many sellers are delaying listings, waiting for more favorable market conditions, while buyers are hesitant due to high financing costs. This cautious approach has led to a slowdown in transactions, with both sides waiting for market shifts.

The retail sector saw a slight drop in vacancy rates to 10.3% in Q3 2024, down from 10.4%. A significant performance gap remains between struggling malls—particularly those reliant on major chain stores—and newer, mixed-use retail developments. Rents showed modest increases, with asking rents up 0.3% to $21.85/sq ft and effective rents rising 0.4% to $24.87/sq ft. Vacancy rates improved or held steady in 51 of 80 primary metros, reflecting a broad, stable national trend. San Antonio’s retail market saw negative absorption in Q2 due to tenant move-outs, but overall absorption for the first half of the year remains positive. In Austin, positive absorption and strong pre-leasing are tightening inventory, driving up rental rates. Both markets are experiencing a decline in the construction pipeline.