NAI REOC San Antonio San Antonio Retail Market I Third Quarter 2011

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1 MEDIA RELEASE Contact: Kim Gatley Senior Vice President & Director of Research NAI REOC San Antonio P I F kgatley@naireocsanantonio.com SAN ANTONIO RETAIL MARKET SEES OVERALL IMPROVEMENT Despite challenges, the San Antonio retail market continues to show general improvement thanks, in large part, to a stable economy that is reportedly one of the strongest in the nation, says Kim Gatley, Senior Vice President & Director of Research for locally-based commercial real estate company NAI REOC San Antonio, citing San Antonio s top ranking in the list of Best cities for jobs right now recently published by Forbes magazine. According to the third quarter survey of nearly 45.6 million square feet of area retail space conducted by the research department of NAI REOC San Antonio, steady leasing activity improved the citywide vacancy rate to 12.8% compared to 13.0% last quarter and 13.3% recorded a year ago. With the exception of the Community Center category, all product types reflected improved vacancy rates compared to the same quarter last year, says Gatley, and the over-the-year uptick recorded in the Community Center vacancy rate was only slight. Meanwhile, the citywide average quoted triple net rental rate remained relatively stable at $18.17 per square foot annually down four cents from last quarter but up twenty-five cents compared to the same quarter last year marking a modest 1.4% annual increase. Softer vacancy rates kept rental rates flat among smaller centers while demand for space in larger centers supported some rental rate increases, says Sandra Rogers, Senior Vice President, NAI REOC San Antonio. (See attached market snapshot for details)

2 Leasing activity was widespread and resulted in 92,032 square feet of positive net absorption citywide. Prominent area power centers led with 66,489 square feet of the total net gain including new leases such as Versona (9,488 sf) at Huebner Oaks Shopping Center in the Northwest sector, Rustic Gallery (5,911 sf) at The Vineyard in the Far North Central sector, Impression Bridal (7,000 sf) at Park North and Corner Bakery (3,500 sf) at Alamo Quarry Market in the North Central sector. Power Centers closed the third quarter with an impressive vacancy rate of 7.5% compared to 8.1% last quarter and 8.1% recorded a year ago. At $24.63, the citywide average quoted triple rental rate for Power Center space fluctuated down five cents from last quarter but stands sixty-one cents higher than a year ago for a moderate annual increase of 2.5%. Looking ahead, the closure of three area Borders bookstores is expected to add a combined total of roughly 80,000 square feet of vacancy to the market next quarter but it is not likely to weaken the prevailing Power Center submarket. Activity within area Community Centers included a 9,040 square-foot lease signed by Redken Cosmetology Salon at Park Oaks Shopping Center in the North Central sector but positive gains were offset by the loss of Conn s (28,000 sf) at DeZavala Oaks in the Northwest. Overall, Community Centers experienced 24,559 square feet of negative net absorption in the third quarter which bumped the citywide vacancy rate up to 11.8% from 11.4% last quarter but vacancy remained relatively stable compared to 11.6% recorded last year at this time. The average quoted price for retail space within Community Centers remained stable flat over the quarter at $19.01 but increased fifty cents or 2.7% compared to the same quarter a year ago. By category, smaller Neighborhood and Strip Centers reported some notable activity in the third quarter including a thrift store (16,000 sf) at Blanco Road Shopping Center and Advance Auto (10,000 sf) at 110 Goliad but despite the positive net gains recorded, both product types continued to struggle with soft vacancy rates of 17.6% and 19.2%, respectively. Vacancy rates, however, vary greatly by sector. For example, the vacancy rate for Strip Centers in the Northeast sector stands at 23.0% while the vacancy rate in the Far North Central sector is much tighter at 16.9%. Location and demographics play a huge role in a tenant s decision to locate to a specific area but all retailers don t use the same set

3 of parameters to seek opportunity, says Ty West, CCIM, Vice President, NAI REOC San Antonio. Existing vacancy has kept downward pressure on rental rates have among area Neighborhood and Strip Centers. On a citywide basis, the cost of leasing space in Neighborhood Centers not accounting for concessions currently averages $14.03 down one cent from last quarter but up two cents compared to third quarter last year. Similarly, the average quoted rental rate for Strip Center space declined thirteen cents from last quarter but remained flat compared to a year ago at $ In many centers, tenants are still able to negotiate for a few months of free rent or additional tenant improvement dollars but as occupancy rates improve, landlords will be less motivated to offer these types of concessions, says West. Despite weakness within some smaller centers, the overall market experienced positive net absorption and showed over-the-year improvement in both citywide vacancy and rental rates, observes Keith McRee, CCIM, Vice President, NAI REOC San Antonio. Speculative retail development remains limited and what little there is under construction has been dominated by growing grocer H-E-B. New construction has delivered less than 272,000 square feet through the third quarter comprised of three H-E-B projects Babcock & Huebner (100,000 sf), Bulverde (120,500 sf) and expansion of Westlakes (51,260 sf). The majority of the new space added and those currently under construction primarily consist of anchor grocery store space for H-E-B with an additional small portion of inline shop space. The limited amount of speculative retail space has been an important factor in the recovery of the market by keeping current demand directed at filling existing space, says McRee. Projects currently under construction total approximately 732,000 square feet a marked increase over the amount of new space delivered the past two years. New projects include a 208,000 square-foot center at Loop 1604 & Bandera anchored by H-E-B Plus (179,000 sf), the redevelopment of Terrell Plaza featuring Target (138,000 sf) and 90,000 square feet of additional retail space and the expansion of The Vineyard with Whole Foods (35,000 sf) which is scheduled to open late Other notable development projects include specialty retail shop space (34,382 sf) set to open next

4 quarter at the mixed-use éilan project located at La Cantera Parkway in the Northwest sector. Phase I of City Base West (120,000 sf) located at SE Military and S. New Braunfels Ave. will feature Texas Roadhouse and Zios Italian Kitchen along with additional retail space and a theater set to open early Construction is also underway at Pearl Brewery where two new mixed-use buildings will add approximately 44,000 square feet of ground-level retail space in addition to upper level office space. Investment activity in the third quarter included the purchase of Redland Trails Shopping Center (32,923 sf) by FH Redland LP, W Commerce (67,614 sf) by B-Y Properties and the longvacant former Albertsons (58,292 sf) in the New Territories Shopping Center by University of Incarnate Word. It appears that leasing velocity and demand for retail space, which generated a total of 315,819 square feet of positive net absorption year-to-date, are steadily moving the San Antonio retail market along a path of recovery in While demand for anchor space has not yet returned in full force, small and mid-sized transactions continue to fuel healthy activity. At the same time, the market continues to see new restaurant and quick-serve concepts enter the market like BRIO Tuscan Grille, Copeland s of New Orleans, Furr s Fresh Buffet, Cheddar s and Steak n Shake. Looking ahead, large retailers are once again sniffing out locations and drawing up plans for new store locations to be announced when the time is right.

5 3Q 2011 Total Total % Avg. Quoted Submarket Inventory Vacant SF Vacant Rent Rate CORE NC 8,478,685 1,041, % $18.99 FAR NC 4,777, , % $23.34 NE 7,967,097 1,199, % $15.08 NW 13,996,271 1,583, % $18.22 CBD 1,278, , % $23.08 SOUTH 4,519, , % $15.55 FAR WEST 4,568, , % $18.06 Totals 45,586,896 5,855, % $18.17 Source: NAI REOC San Antonio END OF RELEASE Quarterly Surveys conducted by NAI REOC San Antonio: Statistics are based on the quarterly survey conducted by NAI REOC San Antonio of all multi-tenant retail centers which are 20,000 square foot and greater, including inline space that may be separately owned. Inventory and vacancy numbers include regional malls, but rental rates do not. Average rental rates reflect asking rates quoted on an annual triple net basis and weighted by the total square footage of each center. For more information about NAI and NAI REOC San Antonio visit and For further statistical detail regarding the above media release, please refer to the accompanying statistical summary chart. For further comment, please feel free to call these NAI REOC San Antonio contacts: Sandra K. Rogers, Sr. Vice President; Keith McRee, CCIM, Vice President; Ty West, CCIM, Vice President; or Kimberly S. Gatley, Sr. Vice President, Director of Research at