Demand for apartments in San Antonio came in at a whopping 3,251 units during 2014’s second quarter. That’s the biggest quarterly demand figure seen since MPF Research began tracking the metro market more than 20 years ago. Furthermore, the result marked an abrupt upward shift in momentum, as San Antonio previously was not registering the strong leasing activity seen in the other big apartment markets across Texas. Emphasizing just how lackluster demand had been Q2’s absorption tally represents 89% of all the demand posted in the metro over the past year.
While new properties moving through the initial leasing process accounted for the majority of San Antonio’s apartment demand during Q2, meaningful absorption also occurred in the existing product base’s middle-market and bottom-tier properties. Such a broad upturn in demand could point to a bump in general economic momentum. However, the latest job creation figures from the Bureau of Labor Statistics (22,500 jobs added during the year-ending June, translating to a 2.5% annual expansion pace) held steady with previous levels. Likewise, home sales activity in Q2 wasn’t drastically different from the volumes recorded earlier.
At this point, then, San Antonio’s huge Q2 apartment absorption figure looks largely like a catch-up result, after demand previously had trailed what might have been expected given the metro’s economic expansion pace.
With demand surpassing completions (1,158 units) by such a wide margin in Q2, the quarterly climb in occupancy was notable at 130 basis points. However, the resulting occupancy figure of 93.2% still left work to do in the metro area. And the annual change in occupancy remained slightly negative, since demand had fallen so far short of completions during the previous few quarters.
Effective rents for new leases grew at a solid pace of 1.1% during Q2, but annual growth remained in the okay-but-not-great category at 2.1%.
During recent months, apartment starts in San Antonio have been running a bit under the concurrent completion pace. Thus, ongoing construction has drifted down to just under 6,800 units, compared to a level that topped 9,900 units a few quarters ago. But that’s still enough new supply moving through the initial leasing process to suggest only moderate near-term momentum for the metro’s overall performance. MPF Research’s expectations call for both occupancy and annual rent growth to move up a bit from the levels seen now, but the jump likely won’t be of a magnitude to change the big-picture story.