Activity in the San Antonio multifamily real estate market slowed down slightly in Q3 2022 after high activity in the past two quarters. While general multifamily sales and rental activity are strong, occupancy rates slightly dropped, and cap rates are low.
Uneven construction and delivery also contributed to a relatively lopsided quarter, with some submarkets posting disproportionate growth. San Antonio overall had a positive Q3 in 2022, but rising interest rates could affect future buying.
However, San Antonio also boasts strong economic fundamentals, with employment surpassing pre-pandemic levels and the city adding nearly 36,000 workers to payroll. San Antonio also has significant multifamily construction plans for 2023 and 2024.
General Area Overview & Demographics
The second largest city in Texas, San Antonio has a population of 1.45 million as of 2023.
The median age is 33, and the median household income is $53,420. The young and diverse population drives a strong economy with significant activity in industrial, manufacturing, healthcare, and sales sectors.
San Antonio has a mixture of a semi-arid and humid subtropical climate, with long, hot summers and short, mild winters. San Antonio exists in one of the most flood-prone regions of the country and receives significant rainfall in the spring and fall.
San Antonio has historically boasted a strong, growing economy based on petroleum, manufacturing, healthcare, and tourism. San Antonio also has the highest concentration of military bases in the nation, and the government is one of the city’s major employers.
San Antonio is home to a number of Fortune 500 companies, including USAA, Valero Energy, and iHeartMedia,
Summary of San Antonio Multifamily Real Estate Performance in Q3 2022
San Antonio had a slight lull in Q3 2022 after two previous quarters of high activity. Rental growth slowed slightly to 6.4%, and vacancy rates increased to 5.0% after several quarters of 95%+ occupancy rates.
Despite slightly rising vacancy rates, the relatively low housing stock has driven regular rental increases.
San Antonio’s economy is strong, with high job growth of 4.7%, although unemployment rates are slightly higher than the national rates at 4.0%. Additionally, single-family rental rates were up nearly 14%, but occupancy rates had a 0.7% year-over-year decrease.
What Are Multifamily Rents Like in San Antonio?
Average multifamily asking rates rose slightly to an effective rental rate of $1,084 per month in Q3 2022, representing a 6.4% year-over-year rental increase. Although rental growth is still strong, growth rates have decreased slightly compared to record growth earlier in the year.
Submarkets in San Antonio with the highest multifamily rental rates were Southtown, Beckmann, and UT of San Antonio, at $1,657, $1,647, and $1,634 per month, respectively.
Both Class A and Class B properties posted double-digit rental growth in the first half of 2022, but rental rates are still relatively affordable in San Antonio compared to the rest of the country. Low vacancies have also contributed to the strong rental growth in the San Antonio multifamily real estate market.
Purchase & Leasing Activity
As of Q3 2022, investment sales totals hit $4.6 billion and were projected to reach over $6 billion by the end of the year—a slight increase from the record high of $5.8 billion in sales in 2021.
The average sales price for multifamily units posted a 7.1% year-over-year increase to approximately $187,000 per unit, which is a new record high for the San Antonio multifamily market.
Leasing activity has remained more or less the same as last quarter, but rising rents could outpace regional income gains, leading to competition among renters for quality units.
Notable Multifamily Real Estate Deals in San Antonio in Q3 2022
Below are some of the most prominent multifamily real estate transactions San Antonio posted in Q3 2022:
- The Connor Group’s $77 million purchase of 342 units at Sonterra Blue;
- DB Capital Management’s $76 million purchase of 407 at ReNew at TPC;
- Dreamstone Investments’ $75 million purchase of 334 units at Timberhill Commons; and
- Old Three Hundred Capital’s $63 million purchase of 312 units at Lantower Alamo Heights.
Most of these notable transactions took place in northern and northwestern submarkets.
New Multifamily Real Estate Development Activity in San Antonio in Q3 2022
Real estate development in San Antonio’s multifamily market remains slow, with only 1,400 units added in the first half of the year. The projected increase for multifamily housing stock in 2022 is only 1.4%—the lowest yearly inventory growth in San Antonio in over a decade. Low construction and tight vacancies contribute to high rental growth rates.
However, new construction is set to increase in the future. As of August 2022, the city had over 11,000 units in the construction pipeline. Central San Antonio, for example, plans to build numerous 200+ unit buildings in the River Walk and Pearl districts.
Market Forecast for San Antonio’s Multifamily Real Estate Market in 2023
Although it experienced a slight lull in Q3 2022, the San Antonio multifamily market is still strong, with high rental growth and ample construction on the horizon. As the region continues to add jobs, multifamily investors can expect demand to continue driving solid rental increases. Some submarkets will likely experience double digit rental increases in the next year.
Additionally, large amounts of new construction predict significant buying activity in the coming months. If the addition of new units lowers occupancy rates, any decrease should be small and soon stabilize as rental demand rises to match. New construction and high sales volumes will also continue to drive pricing increases into next year.
Takeaways for Multifamily Real Estate Investors
San Antonio multifamily investors are in a strong position going into 2023. High-value Class A and Class B properties can be expected to draw the most renter demand, and investors should focus on key submarkets that are showing the highest rental growth.
As always, do your research, stay vigilant, and happy investing!