San Antonio’s multifamily pipeline is drying up, despite the city’s rapid growth.
Multifamily construction starts in the Alamo City amounted to just 21 in the first quarter, marking its lowest figure since 2010, the San Antonio Business Journal reported, citing data from CoStar Group.
This stagnation follows a period of rampant multifamily development post-pandemic. In the first quarter of last year alone, developers started construction on nearly 4,000 units, reaching an all-time high in San Antonio. However, the surge in supply has collided with weakened demand, leading to substantial declines in rental rates across the San Antonio area.
“Rent growth is negative, so why would you want to build another apartment in San Antonio?” asked Daniel Khalil, a Texas market analyst with CoStar.
The combination of diminished demand and rising borrowing costs has effectively paralyzed capital markets, rendering it increasingly challenging for developers and landlords to navigate financial viability. Khalil warns that unless rental rates rebound — an unlikely scenario in the near term due to an oversaturated construction pipeline — minimal multifamily starts should be anticipated this year.
The cautious stance of lenders toward multifamily projects in San Antonio, where vacancy rates exceed 12.5 percent, underscores the challenges developers face, the outlet reported. Despite San Antonio’s status as a prime destination for domestic migration, the market poses significant obstacles to financing new projects, leading many deals to fall short financially.
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“A lot of people believe in San Antonio and want a reason to finance projects, but now there are so many headwinds that these deals aren’t necessarily penciling,” Khalil said.
The situation is particularly concerning due to the lengthy construction timelines associated with multifamily projects. By the time demand resurfaces, San Antonio could be grappling with a looming supply shortage.
—Quinn Donoghue