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SAN ANTONIO RETAIL GOES FULL SPECTRUM

New development brings locals a wealth of shopping options, from luxury emporiums to dollar stores

By Elyse Umlauf-Garneau

San Antonio is home to about 1.2 million people and has seen plenty of retail development in recent years. But the opening of its first Neiman Marcus and Nordstrom stores in September signaled the start of a new era.

For the first time, San Antonio can offer its residents a full range of retail options, from ultraluxury shops all the way down to dollar stores. “We’ve had people with higher incomes moving here, and the timing is excellent for these stores,” said Bryan Parman, director of retail services at locally based real estate services firm REOC Partners. Parman says he believes that Nordstrom’s “make it happen” customer service will be hugely appealing to residents.

Neiman and Nordstrom opened along with General Growth Properties’ 1.3 million-square-foot Shops at La Cantera, which opened along with the stores in September in the city’s bustling northwest corridor. The open-air center, which attracted about 300,000 visitors during its opening weekend, is also anchored by more-moderate department stores Dillard’s and Foley’s and includes such new-to-the-market boutiques as Burberry, Ralph Lauren and Tiffany & Co. The Shops, in turn, is a component of the larger 1,700-acre La Cantera mixed-use complex being developed by San Antonio-based USAA Real Estate Co.

San Antonio has plenty of wealthy shoppers to patronize these stores, observers say. “The area’s demographic composition, in terms of discretionary income, indicates a consumer base that can support those retailers,” said Brent Conlin, vice president of retail development in the San Antonio office of Dallas-based commercial real estate firm Trammell Crow Co. “This will be a good test.”

The city has benefited from an expansion of health care, university and convention center jobs. The economic boons also include a 1.8 million-square-foot Toyota truck plant that will employ more than 2,000 when it opens in late 2006, and the expansion of a Washington Mutual financial services operations center that will add as many as 4,200 new jobs over the next seven years. Further, the Fort Meade, Md.-based National Security Agency (an intelligence arm of the U.S. government) is expected to make at least 1,500 hires this year, with an additional 4,500 jobs to come by the end of 2008. Thanks in part to this employment surge, San Antonio will see population growth of nearly 12 percent by 2009, according to NAI Rohde, Ottmers & Siegel, a local commercial real estate brokerage firm.

Homebuyers are behind several consecutive years of record-breaking housing growth. This year the market is set to outdo last year’s 12,676 housing starts (the 2003 figure was 11,359), and existing home sales rose 18 percent during the first half of this year. According to census data, San Antonio’s median home price last year was $88,453, up from $68,800 in 2000.

The Shops at La Cantera is only one component of San Antonio’s ongoing retail development boom. New neighborhood and power centers and the repositioning of older regional malls are keeping contractors, developers and leasing agents busy. In the past 12 months, the overall retail market has gained more than 433,000 square feet in the total amount of occupied retail space. The average asking rent for all property types in the city rose 3.8 percent to $15.06 per square foot annually, on a triple-net basis. Power centers grab top rents, at $22.71 per square foot.

According to REOC Partners, the citywide occupancy rate climbed to 87.8 percent during the second quarter as 229,000 square feet of empty retail space was absorbed.

The hottest development area is the city’s northern section, especially the corner of Interstate 10 and Loop 1604 — an intersection in the city’s fastest-growing and wealthiest housing corridor. Besides the Shops at La Cantera, the quadrant contains two centers still under development: Atlanta-based Thomas Enterprises’ The Rim, a mixed-use project with a 200,000-square-foot Bass Pro Shops store and a 20-screen Palladium theater as anchors; and Regal Hills, a 1 million-square-foot super-regional power center being built by CABI Developers, Galleria Ventures and Turnberry Associates.

The three will complement each other, says Jim Gdula, Turnberry’s director of retail development. Negotiations with tenants continue at Regal Hills, which will be opening in the spring of 2007. It will include big boxes, shops and restaurants. “It’s a niche that fits well in that quadrant, which will be a shopping mecca,” Gdula said. “Regal Hills will broaden consumers’ choices. They can visit Neiman Marcus at La Cantera for high-end shopping, The Rim for entertainment and us for everyday shopping needs.”

Retail is sizzling in other sectors too. Recently, a number of neighborhood retail centers, ranging from 22,000 square feet to 136,000 square feet, were completed. San Antonio grocery chain HEB has driven several new projects measuring between 200,000 and 500,000 square feet. Target and Wal-Mart have been active too; both have new store openings slated for next year and 2007, as well as several projects in the planning stages.

There also are in-fill and redevelopment projects. Central Park Mall, an old regional, is being redeveloped as Park North. The approximately 400,000-square-foot center is expected to open in phases through next year and 2007.

Trammell Crow is revamping and repositioning the Crossroads of San Antonio, a 1960s regional mall about six miles south of Shops at La Cantera. The center had suffered from a lackluster tenant mix, but Conlin says its prime location points toward a promising future.

The south side has several new projects under way where the Brooks City-Base, a U.S. Air Force outpost, is being converted to nonmilitary uses, including retail. The area expects new HEBs, Office Depots, Sam’s Clubs and Wal-Marts. Another shopping center in the works at the former base is the possibly 750,000-square-foot City Base Landing, which is being developed by locally based Hill-Granados Retail Partners.

More investors are setting their sights on San Antonio. “Until a few years ago, the city hadn’t seen as much attention from out of state investors as other Texas cities,” said Brad Bailey, a sales manager in the San Antonio office of Marcus & Millichap. “It’s now on everyone’s radar screen. The fact is you can get investment property at cap rates that are much more reasonable than in other markets.”

As Kim Gately, REOC Partners’ director of research, put it, “Retail has been the darling of investment in San Antonio for the past couple of years.” She points to the sales of small open-air centers that are shadow-anchored by big boxes like Wal-Mart (at prices in excess of $200 per square foot), or the purchase of one of San Antonio’s top tourist destination spots, Rivercenter Mall, by New York City-based Ashkenazy Acquisition Corp. Another significant transaction was the recent purchase of five centers totaling more than 500,000 square feet by California-based investment firm RPD Catalyst for nearly $50 million.

Bailey sees in-fill properties and centers ranging from 5,000 square feet to 30,000 square feet being eyed by investors. “Such properties are very hotly contested when they go out to the open market,” he said. They are particularly desirable when located near master-planned communities and subdivisions with built-in consumer bases.

Most retail analysts say San Antonio’s retail surge will continue. Parman expects development to start sweeping west and northwest to follow anticipated residential growth. “The northwest is getting ready to explode, and big boxes are getting into position there,” Parman said. “Wal-Mart and HEB already have bought strategic corners in that corridor.”

REOC Partners’ research indicates that there are no less than 6.4 million square feet of proposed projects being planned. Though not all of it will see the light of day, the San Antonio market can accommodate more development, Parman says. “We’ve never seen anything like this here,” said Parman. “It’s the first time in history we’ve seen job, housing and retail growth at this level. There’s a thirst for all this retail.”