$1,247 2Q 2024
-1.8%
90.1% 2Q 2024
-70 BASIS POINTS
2,114 [YTD: 3,250]
2,340 [YTD: 6,053]
Leasing in San Antonio maintained its upward momentum at the mid-point of 2024, although absorption lagged slightly behind the pace of new unit deliveries.
Construction starts have moderated considerably in 2024 aligning with historical averages, suggesting a realignment of market dynamics by 2025.
In the San Antonio metro, peoples under 35—the fastest-growing renter demographic—highlight the need for properties strategically located near quality schools, ample shopping, key employment hubs, and entertainment venues to attract young professionals and families.
QUARTERLY DEMAND
QUARTERLY COMPLETIONS
Leasing in San Antonio maintained its upward momentum at the mid-point of 2024, although absorption lagged slightly behind the pace of new unit deliveries. Over the past quarter, San Antonio renters absorbed more than 2,100 units, following the absorption of 1,140 units in the first quarter. The spring leasing season saw a significant influx of renters to the Northwest and Far West submarkets, which collectively accounted for over 50% of the market-wide absorption in Q2 2024. Overall, only two of San Antonio’s 17 submarkets experienced negative absorption during this period, signaling a rebounding market environment.
While 2023 set a record for unit deliveries in San Antonio, this record is expected to be surpassed in 2024, with more than 10,000 units projected to be added to the base inventory. In just the first half of 2024, the market has already added 6,053 new units, and an additional 4,220 units are anticipated for delivery in the second half of the year. The bulk of these upcoming units are concentrated in the Far West San Antonio and Comal County submarkets, with each area expected to add over 2,000 units.
San Antonio’s apartment market is navigating a phase of growth accompanied by challenges. Over the past year, the inventory has increased by 4.2%, surpassing the rate of absorption and resulting in a 70-basis point decline in occupancy to 90.1%. Despite this, there are indications of market stabilization: occupancy rates have slightly improved on a quarter-over-quarter basis, and 12 out of 17 submarkets still maintain occupancy rates above the market average. Notably, Bandera and Medina counties boast occupancy rates exceeding 94%, while North Central San Antonio recorded the largest year-over-year increase at 1.4%. Looking ahead, the San Antonio multifamily market is set to benefit from positive momentum on the economic front. As multifamily construction starts have reverted to levels reminiscent of the pre-pandemic era over the first six months of this year, the pace of new unit deliveries is expected to moderate by Late 2025. This adjustment suggests a more balanced market environment moving into 2025, aligning supply more closely with demand.
While demand in San Antonio’s apartment market has strengthened significantly this year, the market is still adjusting to a surge of units flooding in over a short period. This influx has put downward pressure on rental growth, with rents dropping by 1.8% year-over-year in the second quarter of 2024, marking the third consecutive quarter of negative rent growth. On a brighter note, rent performance showed a notable improvement, rising by 110 basis points on a quarter-over-quarter basis. As new developments, especially those offering luxury amenities in sought-after communities, continue to enter the market, the competition for renters is intensifying. In response, stabilized properties are offering rent concessions and more competitive pricing. Aggressive leasing incentives, such as several weeks of free rent, are becoming increasingly common, especially in newly constructed developments in popular areas like the Pearl District and Rim-La Cantera.
Average Monthly Mortgage Payment
Average Monthly Rent
Preliminary data from MSCI reveals that the transaction volume for single-asset conventional multifamily deals in San Antonio was approximately $372.3 million in H1 2024, marking a 39% decrease compared to the same period the previous year. Excluding the first half of 2024, when transactions virtually ceased due to the pandemic-induced economic shutdown, this quarter’s volume marks the lowest in the past decade. Furthermore, with only 17 properties changing hands, this period also recorded the fewest transactions for a first half-period since 2014.
Buyer composition so far this year has been dominated by private investors. Institutional buyers have largely remained on the sidelines in San Antonio. H However, this trend could see a shift. Many market observers anticipate that the Federal Reserve may reduce its benchmark interest rate at least once in 2024, potentially easing capital market conditions and encouraging more institutional buyers to re-enter the market.
*Most Active Buyers and Sellers are based on the sale volume of apartment units.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual transaction $2.5M +
|
Under 35 Years
|
35 to 44 Years
|
45 to 54 Years
|
55 to 64 Years
|
65 to 74 Years
|
75 to 84 Years
|
85 Years & over
|
|---|---|---|---|---|---|---|
|
1.7%
|
-0.8%
|
-0.8%
|
-0.3%
|
0.4%
|
0.1%
|
-0.1%
|
In the San Antonio metro area, the proportion of peoples under 35 years old—the fastest-growing renter demographic segment—rose by 1.7% from 2019 to 2022. This trend underscores the importance of strategically locating properties to cater to the needs of families and younger renters. Ideal properties are those near quality school districts, ample shopping and dining options, and key employment hubs. Additionally, proximity to entertainment and nightlife venues is crucial for attracting this younger demographic.
In response to the surge in population growth following the immediate months of the pandemic, San Antonio multifamily developers initiated a construction boom, spurred on by low interest rates This initiative continues to impact the market with an influx of units that has exceeded the market’s capacity to absorb them. As of June 2024, there were 13,638 units under construction, with 7,606 expected to be completed within the next year. This surplus is likely to exert downward pressure on rents throughout the rest of 2024.
Despite these short-term challenges, the long-term outlook for San Antonio’s multifamily market remains upbeat. Construction starts have been adjusted to better align with historical averages, suggesting a realignment of market dynamics by 2025. Rental growth is also anticipated to return to positive territory by year next year. The future of San Antonio’s rental housing market looks promising, with expected increases in absorption driven by employment growth and rising salaries. Key sectors such as healthcare, government, military, and aerospace manufacturing continue to underpin the market’s resilience and positive prospects.
