Ask any investor in San Antonio's apartment sector to describe the local market, and the first word you are likely to hear is “stable.” An economy anchored by the military, health care, and tourism—inherently steady drivers—helps shape this performance. Apartment deliveries, too, generally avoid extremes. But don't confuse stable with stagnant, as San Antonio's apartment market is continuing to evolve.

Located in South Texas and considered the cultural gateway into the American Southwest, San Antonio is the second-largest city in the state and the seventh-largest city in the country. San Antonio's metropolitan area is the 28th largest in the country and is home to approximately 2 million people—two-thirds of the metro's residents live within the city.

The metro produces unusually consistent apartment demand volumes, reflecting that job growth tends to be routine and predictable. The fact that so much of the metro's new supply comes from local and regional firms that have a good feel for the market helps San Antonio avoid the boom-to-bust construction cycles seen elsewhere in Texas, despite the few constraints to building activity.

New projects in the traditionally vibrant northern sector of the city are going more upscale. And some long-ignored neighborhoods elsewhere in the metro are starting to attract attention. Most notably, the urban core is seeing its first real burst of residential building with several high-profile projects in the works, including two condo buildings as well as an apartment development by a locally based developer—all due to come online by mid-2009.

AN EXPANDING ECONOMY In contrast to the economic struggles seen across much of the country during 2008, expansion continues at a healthy pace in San Antonio. The metro is producing new jobs at an annual rate near 18,000 positions, boosting employment by 2 percent to the current total of just over 850,000 jobs. Important to San Antonio's performance, the local economy hasn't been derailed by the collapse of its for-sale housing sector, and there doesn't appear to be any danger of that happening. While home sales volumes this year are running about 20 percent below their 2006 to 2007 peak levels, that still translates to substantial demand. Furthermore, single-family home prices are holding steady.

Greg Willett is vice president of research and analysis for M/PF YieldStar.
Greg Willett is vice president of research and analysis for M/PF YieldStar.

The military plays a big role in San Antonio's economy, with Fort Sam Houston, Lackland Air Force Base, Randolph Air Force Base, and Brooks City Base located within city limits. This serves as a key distinguishing characteristic for the metro. The local military bases are home to approximately 50,000 active-duty troops, and another 40,000 or so civilians are employed at these facilities. Furthermore, despite any U.S. troop deployments that may occur across the globe, the military jobs in San Antonio largely stay in San Antonio, as the specialties at the local military bases focus on medical care and troop training. More military jobs are set to pour into San Antonio over the next few years, primarily because the U.S. Army has designated Fort Sam Houston, located northeast of downtown, as a key spot for consolidation of medical care for military personnel. Roughly 13,000 additional medical jobs are targeted for this facility through the end of 2011.

Looking beyond the employment count tied directly to San Antonio's military bases, the U.S. Defense Department estimates that these facilities support about 100,000 additional jobs in the general economy. Not all of these jobs are the general service positions that would be a part of the spin-off component for any large workforce. High-paying aircraft maintenance jobs are included in this tally, after many of the civilian employees who had been working at Kelly Air Force Base, which was closed in 2001, were hired by private-industry contractors to do the same jobs. The Kelly site is now Port San Antonio, an aerospace/industrial/logistics inland port, with a job base of about 17,000 positions.

Private-sector medical care and biomedical research also are key drivers of San Antonio's economic vitality. The cornerstone for that business segment is the South Texas Medical Center, a 900-acre campus in northwestern San Antonio that includes a dozen hospitals and more than 30 additional medical facilities and institutions that employ close to 30,000 people. Building projects valued at more than $500 million are in progress at the South Texas Medical Center. Furthermore, since the campus is only about two-thirds built out, there is lots of room to accommodate future expansion.

Tourism forms another notable component of San Antonio's economy. More than 26 million visitors come to the city annually, according to the Greater San Antonio Chamber of Commerce, and local employment in the hospitality sector encompasses about 100,000 jobs.

REPEAT PERFORMANCE Apartment development in San Antonio has been very active during recent years. Additions from the beginning of 2005 through the middle of 2008 totaled nearly 17,000 units, growing the base of inventory at a pace roughly 1.5 times the norm seen during the previous decade. Another 5,300 units were underway going into the second half of 2008. While that's a big block of future new supply, it's nowhere near the burst of building activity seen elsewhere across Texas. For comparison, Austin, which is about the same size as San Antonio and is adding jobs at a similar clip, will be deluged with roughly 13,000 new units finishing between mid-2008 and the end of 2009.