New Braunfels | July 2022

2022 REAL ESTATE EDITION

a bedroom community, but that is changing. He noted that while New Braunfels has always held a center of gravity on tourism as a destination for vacationers, lower-wage jobs cre- ated a net inow of people to work the service industry jobs that support those tourists. However, at salaries above $40,000, New Braunfels has seen a net outow of people who reside in town but do not work in New Braunfels, Packer said. “We do think there’s an opportu- nity to bring jobs and people closer together,” Packer said. “This is a corri- dor with a lot of attention given to it. There’s a lot of opportunity, and if we can match that opportunity with the skills sets of residents and knowing what a phenomenal place to live New Braunfels is, for us that’s kind of that alignment of community rst, eco- nomic opportunity, and then devel- opment reality is kind of where our strategy is focused ” That growth, at least in the eyes of some commercial Realtors, went virtu- ally uninterrupted through the COVID- 19 pandemic. “It’s almost like

something we’re seeing in every sub- market,” Khalil said. “We’ve seen a real ramping down of a lot of new oce construction. Comal County is in some ways just perpetually one of those sub- markets that’s growing.” With new oce space construc- tion continuing in New Braunfels and Comal County, the vacancy rate has remained 3.2% while the San Antonio area in general has a higher vacancy rate of 10% or more, Khalil said. “That’s actually unique because the San Antonio metro as a whole has had negative absorption, which means less space being occupied,” he said. For multifamily units, the forecast for new construction shows an addi- tional 972 units becoming available in the next two years. That might mean a greater availability for renters where the market is currently very tight, Khalil said. “Over time we really see that leveling o and maybe even being a little lower than the San Antonio rate as a whole, but denitely not as low a vacancy rate as we’re currently seeing.” Some of the eorts toward keeping skilled labor in town the past few years

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 sq. ft.

Ex. $6.25 sq. ft.

Ex. $1.25 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

SOURCE: INVESTOPEDIACOMMUNITY IMPACT NEWSPAPER

spaces a hot commodity, Rushing said. “Those [second generation] spaces are a lot harder to nd these days. Especially the smaller ones with a patio or a drive-thru, those get snatched up almost instantly.” Interest rate rise creates uncertainty CoStar Group’s ndings expect the vacancy rates on oce and retail buildings to stay below 4% in the next few years, even with new construction coming online. They do not predict multifamily construction to increase in vacancies either until at least 2025 when a signicant amount of new con- struction is expected to hit the market. Still, some issues in the foreseeable future could dampen the growth on the commercial front, said William Chittenden, associate dean and profes- sor of nance at Texas State University. “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,” he said. “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 eect on homebuyers’ purchasing power, something that could also aect 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 commercial proj- ects, though the outlook is uncertain,

Chittenden said. Khalil said the change in interest rates is too recent for a quantiable forecast, and any current construction underway now would not be aected. “If anything that would kind of bring vacancy rates down even more, because, you know, there would be less new supply coming online for a growing submarket,” Khalil said. For his part, Ybarra said he sees no sign of the market slowing down. “The activity level has been extraor- dinary. We have lots and lots of new folks coming into this area. Moving here and wanting to take various posi- tions. What we’ve seen in the market as well, too, is that most of the deals that get done are cash deals with a very reasonable closing time,” Ybarra said. Recently, his company has received constant inquiries about commercial property from area codes all over the United States, whereas two years ago, he said, most inquiries were more regional. Ybarra said he thinks if a slowdown happens, it will not be noticeable in the region at rst. “Some parts of the country are going to be much more aected than what we see going on here in this Texas cor- ridor. Part of the driver behind that is that you’ve got San Antonio and Aus- tin and Houston and Dallas, which are huge job creators today,” Ybarra said. “So as long as those jobs are available, you’re going to see migration ports lling those positions.”

has been in the med- ical eld, according to David Ballard, rst vice president at CBRE, a com- mercial real estate rm, who said the company has seen a large amount of new medical building construction and leasing in the past few years. Restaurant space is another sector where supply is struggling to keep up with demand, said Jeremy Rush-

New Braunfels, it’s denitely a dierent market than Austin by far and even a San Antonio to where the COVID[-19] closing eect was so minimal around here compared to other markets, to where almost all the spots that once they reopened are past their 2019 sales,” said Patrick Wiggins of Wiggins Commer- cial about the prop- erties overseen by

“WE’RE VIRTUALLY OUT OF OFFICE SPACE, AND WE’RE VIRTUALLY OUT OF RETAIL SPACE AT THIS JUNCTURE. SO THERE IS A NEED FOR DEVELOPERS TO PROVIDE MORE OF THAT PRODUCT TYPE.” MIKE YBARRA, PRINCIPAL WITH

LEGACY COMMERCIAL REAL ESTATE IN NEW BRAUNFELS

the company. “So they’re doing better than they were pre-pandemic, and that was just like a blip on the radar.” Varying demand among sectors New Braunfels’ location and emer- gence as a unique submarket in the San Antonio area is also contributing to the uptick in new oce space, said Daniel Khalil, senior market analyst with CoStar. “It’s pretty unique among a lot of other areas [where] we’re not seeing a huge uptick in oces everywhere. What’s going on with oce—it’s not

ing, an associate with the Restaurant Realty Group, a commercial broker that specializes in dining realty in the San Antonio and Austin areas. “There is virtually zero availabil- ity right now. If you want to com- pletely build out a space, there’s some options, but a lot of folks are looking for what’s called second generation,” Rushing said. For prospective restaurateurs will- ing to spend the money building out a kitchen it will be an investment, he said, anywhere from $100,000 to $1 million, making the second generation

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NEW BRAUNFELS EDITION • JULY 2022