Public-Private Initiatives Help Metro Weather Inbound Headwinds as Multifamily Performance Moderates

Public sector and related employers mitigate demand hurdles. Due to a high concentration
of recession-resistant industries, San Antonio is uniquely poised to withstand an
economic downturn. Aside from a plethora of state government organizations, the region
boasts a substantial national defense sector — including a regional NSA headquarters.
This agency underscores San Antonio’s notable cybersecurity segment, which constitutes
the second-largest cluster of category firms nationwide. Concerns stemming from rising
cybercrime could keep segment employment steady, even as downsizing is observed
elsewhere. Easing overall job growth is contributing to falling renter demand and moderating
fundamentals, after record-low vacancy was observed early last year. In 2022, the
market reported its first year of negative net absorption in over two decades. Availability
is expected to continue trending upward this year, pushed up by a five-year high of supply
growth. Vacancy appears to be returning to levels typical during the pre-pandemic economic
cycle, when rates in the mid-6 to mid-7 percent range were often observed.
Investors seek assets proximate to metro’s economic drivers. Prompted by the rapid
growth of Texas markets, institutions are increasingly acting in partnership with smaller
local parties to ease the acquisition process, although mounting financing headwinds will
likely complicate this. Active investors are mostly targeting opportunities in San Antonio
proper, with remaining focus concentrated to the city’s north and east. Prominent locales
include New Braunfels, Boerne and Converse, which offer entry costs well below market
average. Near the core, investors are pursuing opportunities in northern areas around the
1604 Beltway. So far, buyers have been active near the intersection of this roadway and
Interstate 10, which offers proximity to a number of major employers, in addition to the
University of Texas at San Antonio. Rapid development in the metro’s northwest should
provide investors with ample capital placement opportunities here moving forward.