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The city is consistently eking out its weakest showings for apartment starts in over 15 years.
New apartment construction is dwindling due to both high interest rates and low interest.
According to data from CoStar (NASDAQ: CSGP), high interest rates began turning down the spigot in late 2022, and apartment starts noticeably began to taper as the year went on and the final deals that had been negotiated during the pandemic's housing frenzy played out.
In the first quarter, the city posted a record 4,430 starts. By the end of the year, that number dwindled to a scant 1,671 — a nearly two-thirds falloff.
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The decline was even more pronounced during the first quarter of this year, when just north of 400 starts were recorded. That seems to be where the market has bottomed out — for now — with 314 starts recorded last quarter.
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"The primary factors behind this decline in construction starts are relatively high interest rates, negative rent growth over the past year, and modest absorption that is unable to match the pace of deliveries," said Daniel Khalil, CoStar's South Texas analyst.
Those factors have tightened the flow of financing for new projects, he said.
Still, the successive levels of new starts over 2022 and 2023 have kept San Antonio's construction pipeline loaded, and with absorption rates simply not keeping up with deliveries, competition for a shrinking market has forced concessions — sometimes steep ones — from landlords to entice potential tenants.
The problem is particularly pronounced in the Class A, or luxury apartment market, where most new product is delivered.
"San Antonio is already Texas’ second-most luxury-oriented apartment market, and it is arguably over-supplied in this segment. This dynamic is what I would describe as a 'tenant’s market,'" Khalil said.
Once interest rates come back down, he said starts are likely to pick back up — gradually, and perhaps not quickly enough to keep up with the demand that could be whipped up by consistently high rates of inmigration to the area.
Square feet leased & sold in 2023
| Rank | Prior Rank | Business name, Prior year's rank |
|---|---|---|
1 | 1 | Partners Real Estate |
2 | 2 | KW Commercial |
3 | 3 | Endura Advisory Group |