2022 REAL ESTATE EDITION
population growth in general, as Hays County continues to see rapid growth. The most recent U.S. Census Bureau data estimates the county has now increased in population by more than 100,000 new residents since 2010. Inacio said industrial projects began to pop up and continue to expand in the Buda and Kyle areas primar- ily because of their proximity to the Austin area, but in the past two years, more projects are heading further south to the San Marcos area, as evi- denced by Hill Country Studios, an approximately 820,000-square-foot movie and video production studio that Inacio said would be larger than the current largest studio outside of Hollywood, located in Georgia. Not all of the industrial develop- ments are staying along the I-35 corri- dor, however. Inacio said the availability of a growing workforce residing in Hays County juxtaposed with SH 130 just a few minutes away in Caldwell County has created interest in projects there, such as the $1 billion battery and solar power plant facilities Chem-Energy Corp. announced in November in a Chapter 381 agreement with Cald- well County. One plant is slated for Uhland, east of Kyle, and the other near Martindale, just 15 minutes east of San Marcos. Varying demand among sectors Not every sector of commercial real estate is steaming ahead in each city at the same rates, however. Brooke Damron, a broker associate with the Damron Group Realtors, said o ce and retail particularly in San Marcos is still feeling a fallout from the coronavirus pandemic. Restaurant space in particular is not moving in certain areas.
“It depends on the space, the nish, the condition, you know, these older sites. They’re typically sitting longer even though they’re going to have lower rent. It’s not all apples to apples, right? So that’s part of the uctuation when you say it’s all over the map,” Damron said. Damron pointed to a few success- ful restaurants that have been for sale and remain in operation that have sat on the market for months or in some cases years, such as Grins Restaurant and Hays County BBQ. Both have also reduced their asking price, she said. Damron said it is also usually much cheaper to buy an existing business outright than building out much of what is currently available in San Mar- cos—shell space that would require the business tenant to cover all the costs of building out a kitchen space. Jeremy Rushing, an associate with the Restaurant Realty Group, a com- mercial broker that specializes in commercial dining realty in the San Antonio and Austin areas, called the market in San Marcos “weird.” For prospective restaurateurs willing to spend the money on a build-out it will be an investment, he said, anywhere from $100,000 to $1 million. There are options available in the San Marcos market to do so, he said. “It’s dependent on the college, and the businesses eld it when it’s not there during the summer or like winter break. It seems like a lot of the Austin [restaurant] groups kind of skip over it and go straight to San Antonio,” Rushing said. Interest rates create uncertainty CoStar Group’s ndings expect the vacancy rates on o ce and retail buildings to stay below 4% in the next few years, even with new construction
WHAT IS TRIPLE NET?
Renting commercial space can seem more like a mortgage for rst-time entrepreneurs. The tenant takes on sole responsibility for any and all costs associated with the space being leased. Here is an example of how most common triple net lease agreements work.
BASE (NET)RENT
Broken down in appraised taxable value per square foot per year and insurance premium on that space NET PROPERTY TAX AND BUILDING INSURANCE
COMMON AREA MAINTENANCE
Broken down in cost per square foot per year
The net cost for average maintenance by landlord on common areas per square foot per year
Ex. $20 per sq. ft.
Ex. $6.25 per sq. ft.
Ex. $1.25 per sq. ft.
CALCULATING THE RENT
Triple net rent: $27.50
Example sq. ft.: 2,000 sq. ft.
Lease amount: 12 months
Monthly rent: $4,583.33
÷
=
X
SOURCE: INVESTOPEDIA COMMUNITY IMPACT NEWSPAPER
coming online. They report a signi - cant amount of new construction in 2021-22 created a rise in multifamily vacancies this year to under 9%. Still, some issues in the foreseeable future could dampen the growth on the commercial front. “I wonder though, given the recent acceleration in interest rates, if that’s going to impact any of these things that have been proposed but haven’t actually broken ground yet—if they’re going to get postponed,” said William Chittenden, professor of nance at Texas State University. “In all three of the reports [from CoStar], they’ve got big spikes in 2023 in terms of what’s supposed to come online.” Chittenden said recent increases in interest rates by the Federal Reserve will have an immediate e ect on homebuyers’ purchasing power, something that could also a ect the projected growth of commercial real estate as well. The tension between fast growth in population and the interest rate increases could augment
some of the projections for commer- cial projects, though the outlook is uncertain, he said. Damron said she, too, wonders what the increase in interest rates will mean for commercial as it is already knock- ing prospective buyers out of the resi- dential market. She said she also sees the asking prices for some commercial properties as varying wildly, perhaps as a sign commercial properties are trying to cash in on the ever-rising prices in the residential sector. “There’s also things on the market right now that I think are way over- priced, and people have gotten caught up in this real estate frenzy that’s de - nitely happening on the residential side,” she said. “I think that people are trying to ride this residential wave and it’s not translating as much as residen- tial has drastically changed.”
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SAN MARCOS BUDA KYLE EDITION • JULY 2022
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