Multifamily Construction Pipeline Beginning to Thin in San Antonio, Vacancies Dip

As the pace of deliveries eases from the highs recorded last year, multifamily operating conditions in San Antonio are beginning to trend in a more favorable direction. During the first half of the year, deliveries declined by 20% compared to the same period in 2024, allowing strong local demand to begin catching up with supply growth. With new supply tapering, vacancy rates declined in both the first and second quarters of this year, marking a reversal after nearly three years of consistent increases dating back to mid-2022. During this same period, rents also fell in nearly every quarter, though the most recent dip was milder than the sharper drops recorded during the second half of 2024. There were a handful of submarkets that posted positive shifts in both rents and vacancy, including the Far Northwest, North Central, and Northeastern San Antonio areas.

The San Antonio multifamily investment market improved in the second quarter as activity accelerated. Year to date, total sales have surpassed the same period of 2024 by nearly 30%. While pricing has dipped slightly from last year’s peak, it remains elevated compared to years prior to 2024. For transactions with available pricing data, the median sale price during the first six months of the year was $129,300 per unit, down from $135,200 per unit in 2024. During the first half, most sales were concentrated in northern submarkets that have shown the strongest improvements in operating performance. The North Central and Northwestern areas of San Antonio accounted for nearly half of all transactions during the first half of the year. Cap rates remained between 6.0% to 6.5%, a range that has held since early 2024.

Looking ahead

Developers are set to maintain the pace of multifamily deliveries set in the first half through the end of the year. Projects totaling 8,000 units are scheduled to come online in 2025, lagging the peak levels recorded last year by 26%, but still outpacing the region’s trailing 10-year average by a wide margin. While deliveries are forecasted to be above trend, renter demand is expected to remain elevated, fueled by a local employment market that is expanding nearly twice as quickly as the national rate. Vacancy is expected to tick lower in the second half, marking the local market’s first annual improvement since 2021. Despite the anticipated vacancy tightening, rents are expected to record a modest decline in the coming periods; rent increases are likely to resume beginning in 2026. Longer-term, supply and demand trends should return closer to equilibrium as multifamily permitting levels have begun to ease and the number of units under construction is beginning to contract.

Properties are expected to change hands at an accelerating pace through the end of 2025. Total sales this year are likely to exceed last year’s levels, though still fall short of historical averages. Still, the current oversupply conditions may continue to weigh on the sales market. Once inventory growth begins to cool in 2026, an uptick in transactions is anticipated, supported by stronger market fundamentals forecasted for San Antonio in the coming years. Stabilizing vacancy and rents declines should enhance investment viability. Recently, investors have demonstrated a preference for acquiring properties in submarkets with solid fundamentals, such as North Central and Northwestern San Antonio. As these improved operating conditions expand, transaction activity may become more widespread. Cap rates in San Antonio remain higher than in many comparable markets, which could attract investors, particularly if anticipated interest rate cuts materialize in the coming months.

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