Renters have a slight edge when it comes to price in San Antonio’s apartment market today, but it’s an advantage that might not last.
The fast-growing supply of multifamily and build-to-rent housing, at 220,000 total units in the metropolitan area, is pushing rates down.
A building spree of sorts has been ongoing since 2010, with 11,000 units added to the San Antonio metro area in the last year alone. In 2022, builders kicked off 13,700 units.
As those units became available, competition heated up and pushed down rent.
“That definitely indicates that this is a tenants’ market,” said Daniel Khalil, associate director of market analytics for the real estate information firm CoStar. “Rents are falling [and] that’s obviously a situation that’s much more friendly to tenants than landlords.”
The average monthly rent for an apartment in San Antonio is $1,282, a drop of almost 2% in the last year, and still below what Apartments.com says is the national average of $1,564. That’s good news for the 48% of households in the area who rent versus own.
Rents have dipped in many cities across the country, including Texas. Austin’s rates are down 4.5% since last year, he added.
Free rent
But the tide could be turning. While construction is ongoing, groundbreakings have slowed.
This year so far, only 1,000 units have been started.
While last week’s decision by the Federal Reserve to lower interest rates could help spur new development, it takes at least two years from groundbreaking to complete a typical multifamily complex. Those under construction today likely qualified for loans before interest rates spiked last year.
For renters, that means rental rates could stabilize or steadily rise.
In parts of the country where demand is high but growth hasn’t happened as rapidly as in Texas, places like Washington, D.C., and New York City, rent prices have gone up.
With the sheer number of new properties built in San Antonio, the race to get apartments occupied means it’s not uncommon for property managers to sweeten the deal to get a lease signed. In some cases, the incentive is two months of free rent.
“From an owner’s perspective, it has to do with stickiness,” Khalil said. “Once someone moves into a community, they’re likely to stay longer than one year.”
The overall occupancy rate in San Antonio multifamily housing is almost 87%. But vacancies are highest in the luxury apartment class, at almost 15%, and lowest in the one- and two-star developments, at 11%.
Luxury living
Even with an oversupply, conditions remain tight for renters in San Antonio looking for naturally occurring low-cost or subsidized and affordable options.
“San Antonio is one of the most luxury-oriented apartment markets in the state of Texas,” Khalil said.
Almost half of all complexes in the area are considered luxury, or four- and five-star developments with modern interior finishes and resort-style amenities on site. Sparkling pools and fancy clubhouses attract renters.
“It’s something of what developers are calling amenity wars,” he said.
Yet when there’s a large supply of luxury apartments, overall rent prices can get pushed lower, Khalil said, giving the middle-income renter the chance to take advantage of competing offers.
One example of an amenity-rich property is Potranco Commons, a nearly finished 327-unit development by the Lynd Company and Santikos on the far Westside.
“Everyone claims to have a resort-style pool, but we have two resort-style pools that are connected so it’s an enormous pool area [plus] grilling and outdoor areas,” said Anthony Tiritilli, president of development at Lynd. “It’s got one of our largest gyms to date that we’ve built.”
Lynd also leases apartments at reduced rates to fitness trainers and instructors in exchange for providing on-site sessions that bring residents into the gyms and workout studios.
Occupancy wins
The West Loop 1604 complex follows another similar Lynd project, Culebra Commons, which Tiritilli called a “tremendous success,” with well over the targeted 90% of the units leased.
The timing for Potranco Commons was especially profitable for Lynd, he said. Construction began before the pandemic pushed material prices sky-high and demand for apartments has been steady. The project is expected to be completed in early 2025.
Rent for a one-bedroom at Potranco Commons starts at about $1,200, with a special promotion of one month’s free rent.
In San Antonio, between 2010 and 2019, rent costs grew by an average 3.7% with demand and supply not fluctuating much, according to Apartmentdata.com. Prices rose sharply in 2021, then started to level off the following year as interest rates began to climb.
Since then, high construction costs have contributed to steadily rising rents, Tiritilli said. But there are other pressures.
“It’s not that the big, greedy developers are … collecting lots of money, that’s not what’s happening,” he said. The biggest problem is the increase in operating expenses — from payroll and energy to general supplies and insurance.
In the booming Tobin Hill and areas near the Pearl, the average rental rates trend higher than anywhere else in San Antonio. The Tin Top Flats at the Creamery apartments, open since 2023, advertises a one-bedroom for $1,794.
Lynd also has a multifamily property under construction in the area. The 260-unit Josephine is already leasing, at higher rates than the developer’s far Westside property, and will be completed by early next year, Tiritilli said.
In addition to proximity to the Pearl, the Josephine features urban living amenities like a bike storage and maintenance room and a rooftop pool.
Both Lynd properties will offer about half of the units as affordable housing, for those making less than 60% to 80% of the area median income.
‘Emerging market’
After kicking off new projects across the country every quarter for the last few years, Lynd hasn’t started any new developments this year due to higher interest rates, Tiritilli said.
That’s reflective of the industry’s typical boom-bust cycle.
“It gets overbuilt [and] everybody’s got to stop,” he said. “Capital is not there to even fund people that want to take a risk and start so everybody kind of dials back, and then everybody jumps in at the same time. It’s like a big seesaw.”
Demand for housing and lower costs for things like skilled labor and insurance, however, still makes the region attractive to developers. A Houston-based real estate developer, Rockspring, has plans for a 900-unit project in Tobin Hill.
“San Antonio is an emerging market,” Khalil said. “It’s also a very development-friendly, high-development kind of market, so there’s just a lot of competition.”
But lowered interest rates could put a new kind of pressure on the rental market as renters make the leap to homeownership.
“I really do think that that is a real possibility, especially in a market like San Antonio, where, anecdotally, I think a lot of people move to specifically realize the American dream and buy a house,” Khalil said.
On the other hand, he said, the fact that home prices in San Antonio are appreciating faster than any other city in the top 25 metropolitan areas in the United States might be good news for homeowners trying to build equity.
“But not great if you’re trying to realize the dream of homeownership and buy [because] San Antonio is becoming less affordable.”