Record Rent Growth in San Antonio Corresponds to Market Evolution
San Antonio has been one of the nation’s most consistent apartment market performers over the course of the past decade, with occupancy rarely straying very far from its average of roughly 93 percent and annual rent growth rarely getting drastically out of line with its norm near 2 percent.
But if you’ve heard anyone from the MPF Research team talk about this metro at our annual Texas/Southwest Apartment Markets Conference or other events, you know that we expect the highs and lows to get somewhat more wide-ranging in the future. Rent growth results for the past year perhaps give the first particularly strong indication that the expected evolution in the market’s performance is really starting to happen.
Effective rents for new leases in San Antonio jumped 4.6 percent during calendar 2011, more than doubling the historical norm even though current occupancy of 92.9 percent is virtually identical to the past average.
A couple of factors appear to be playing significant roles in the more aggressive rent positioning that registers in the Alamo City.
First, the metro’s building boom of 2006-2009 – more than 21,000 units were built during that four-year period – brought a slew of upscale product to San Antonio. In many cases these developments are comparable to the typical new supply in Dallas/Fort Worth, Houston and Austin, whereas in previous generations of building many of San Antonio’s best-of-the-best properties would have been Class A- to Class B communities in the other big metros across Texas. This upscale product segment is targeted toward renters-by-choice, rather than those who simply can’t afford home purchase, so really for the first time San Antonio has a large block of apartments where a renter prospect coming in the door hears a lot more about product appeal than he does about price.
Second, this new product in quite a few cases has come from owners and operators who are new to San Antonio. Furthermore, newcomers also spurred a wave of investment activity captured by existing projects, since the fact that the metro didn’t really falter much during the national recession raised its profile among those seeking stability. While it’s not fair to characterize these new owners and operators as more sophisticated in their business practices than those who traditionally have been active in the San Antonio market, you can say they have more experience in environments where aggressively pushing rents is the norm, rather than the exception.
In the future, then, don’t be surprised if San Antonio rent change proves a little more substantial than it has in past periods of comparable occupancy.