Crickets chirping: Apartment development dries up in San Antonio

Here’s a San Antonio twist on the old line about “no money, no mission.”

It’s more like no money, no multifamily in the Alamo City.

Weak demand has combined with high interest rates to turn a stream of development of apartments to a trickle lately, the San Antonio Business Journal reported, citing data from CoStar. 

The pipeline has been constricting since late 2022, as deals started during the multifamily frenzy of the pandemic began to peak.

Now they seem to be played out, with new starts accounting for 314 multifamily units in the first quarter of this year, less than 10 percent of the pandemic peak.

“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.

The market is seeing a double-edged effect as the pipeline dries up, with landlords who face higher overhead in the form of increased borrowing costs also having to offer concessions to attract tenants.

The trend is pronounced at the high end of San Antonio’s apartment market, a particular sore point because luxury units accounted for much of the recent additions,

“San Antonio is already Texas’ second-most luxury-oriented apartment market, and it is arguably over-supplied in this segment,” Khalil said. “This dynamic is what I would describe as a tenant’s market.”  

The city’s average rent was $1,259 in the first quarter, down a fraction of a percent from the previous quarter, compared to the national average rent of $1,721, according to Yardi Matrix. If interest rates start to come down, development activity is expected to pick back up to accommodate continued immigration to San Antonio, which was the fastest-growing city in the nation last year.