December 9, 2024

Multifamily Deliveries Elevated in San Antonio, but Pipeline Beginning to Thin

Q3 2024

Despite elevated deliveries to this point in 2024, property performance in the San Antonio multifamily market was healthy during the third quarter, as the vacancy rate held steady and rent growth gained some ground. Developers in San Antonio have completed roughly 10,300 units so far this year, already outpacing the full-year total for all of 2023, and reaching a new cyclical high for the area. The combined forces of rapid population expansion and continued growth in the labor market are fueling strong renter demand, which kept vacancy increases at bay in the third quarter and drove modest rent growth. Asking rents rose by 1 percent over the past three months to $1,150 per month, and are now just 0.4 percent below peak levels recorded one year ago. Apartment rents are relatively even with levels recorded in the second quarter of last year due in large part to strong rent growth in the region’s largest submarket, Far North Central San Antonio.

Sales activity in the San Antonio multifamily investment market to this point in 2024 is in line with transaction volume recorded during the first three quarters in 2023, though total sales are still modest compared to recent years. While activity levels have remained fairly consistent, pricing has declined since last year. In transactions where pricing was available, the median price to this point in the year is $94,100 per unit, after levels have topped $100,000 per unit in each of the prior three years. There has been a significant dip in pricing for middle-tier assets which is dragging on the overall pricing figure. The median price for Class B properties to this point in the year is $88,600 per unit, down 34 percent from last year. Pricing trends have been steadier in top-tier and lower-tier assets. One reason for the declines being recorded is several assets that have traded year to date have involved properties purchased at peak levels a few years ago.

Looking ahead

The fourth quarter is expected to be another active period of new apartment construction in San Antonio, creating some additional supply-side pressures. This year will mark the peak for new rental deliveries in the San Antonio area, and a slowing pace of supply growth will begin to take shape in 2025. For the most part, new supply is concentrated in only a few submarkets and is being offset by continued demand. The market is on pace for another year of employment growth that surpasses the national rate of expansion and supports apartment absorption. Additionally, the city of San Antonio has been the top city for population growth, adding nearly 22,000 residents in the latest annual reading. This demand is expected to ultimately support rent growth, particularly as vacancies eventually tighten as fewer units come online. For 2024, rents will record minimal increases, before a more predictable rate of expansion is expected to begin to take shape in the middle part of next year.

Transaction volume in the San Antonio multifamily market is expected to maintain its current pace through the end of the year, and total sales activity in 2024 is forecast to closely track levels recorded in the prior year. As the calendar turns to 2025, however, volume may begin to gain momentum. Some of the potential in the investment market will be linked to the direction that interest rates take. Rates have been volatile in recent months but are generally expected to trend lower in the year ahead, a move that should create more favorable conditions when underwriting acquisitions. The properties that sold during the peak may create additional volume going forward. Nearly 30 percent of the properties that have traded to this point this year had previously changed hands during peak activity levels in 2021 and 2022.