ABQ’s commercial real estate market is ‘everywhere’

When cities grow, where do they go?

With vacancies in the industrial real estate market drying up and demand rising in all real estate markets, finding affordable space around Albuquerque is becoming increasingly difficult.

Persistent supply chain issues and labor shortages are contributing to rising costs, with fewer new construction and lower supply across retail, industrial and office real estate.

SVN/Walt Arnold’s retail broker Steve Lyons said, “The market is really everywhere.

industrial

The industrial and commercial real estate market has been particularly under pressure, with vacancy rates historically low not just in urban areas, but nationally. Albuquerque’s industrial vacancy rate is about the same as the national average, but has slightly less vacant space than similarly sized markets.

Industry broker Bill Robertson, senior vice president and principal at Colliers International, said he had never seen a level this low.

“Not my lifetime,” said Robertson. “And I’ve been working on this for 40 years.”

Prices are rising amid high demand, low supply and rising national inflation. According to his recent CBRE report, median lease prices rose 38% in the third quarter of this year.

According to Robertson, many people looking for a warehouse are desperate for a space that they can “make it out of” with what they have. If Albuquerque doesn’t have that supply, they will look elsewhere.

CBRE’s first vice president, Jim Smith, said little new industrial construction has taken place in Albuquerque in the last decade.

But that is starting to change.

“There’s probably more speculative industrial property construction going on than ever before,” said Smith, who specializes in industrial real estate. It’s changed in the last 18 months.”

According to an October CBRE report, there are 528,636 square feet of industrial real estate under construction, with 15,715 square feet of speculative projects under construction in Rio Rancho. However, Smith says much of this new structure will be out of service for some time. Problems with his chain of supply have extended construction times and delayed the arrival of new properties.

“Everybody’s pulling their hair out,” Smith said.

office

Albuquerque office real estate is slightly more available for rent than Tucson or Colorado Springs. However, the number of office spaces available for rent has remained stagnant in the city for years.

Walt Arnold, Managing Director of SVN/Walt Arnold Commercial Brokerage Inc., said:

There was no new office space under construction in the city, according to a Colliers report in July.

Rising costs are putting pressure on new construction of new office space, Arnold said, with more developers choosing to adapt existing properties for office use rather than new construction.

However, building renovations and even general maintenance are becoming more expensive.

“Taxes, insurance, chores, landscaping, heating, ventilation, air-conditioning, and all the costs required to run an office building are increasing,” says Arnold. “But the cost of doing that hasn’t gone up as much as rents have.”

Arnold said office rents in Albuquerque have remained flat or increased only slightly despite rising costs for landlords. It’s kept affordable.

Arnold sees more change as employers assess how they want to use their spaces in the post-pandemic era.

“Staffing the office is what many corporate leaders feel is the right thing to do,” says Arnold. “And many employees feel they can work from anywhere. , can you handle it in less space?”

retail

Like office space, the retail real estate market has higher vacancy rates than the industrial market.

But a nationwide boom in new small businesses is driving demand for smaller retail spaces, says SVN/Walt Arnold broker Lyons.

According to data from the US Census Bureau’s Business Formation Statistics, New Mexico saw an almost 10% increase in the number of Employer Identification Number business applications from August of this year to last year.

“It’s not as tight a market as industrial, but it’s still a very healthy, very strong market,” said Ben Perik, vice president of Colliers International in New Mexico. “It’s still more of a landlord’s market than a tenant’s market.”

That demand isn’t even across the market. The best spaces, Class A and new construction, fill up quickly, Lyons said. Class A office space is generally located in prime locations, is in good condition, has more amenities than other office spaces, and is more expensive to rent.

But for less desirable properties, Perich says there are “permanent vacancies.”

Lyons echoed that sentiment.

“Some properties have late leases and some properties are 100% leased,” says Lyons.

The types of properties renters are looking for are also changing, Lyons said. He sees interest in smaller properties housing just one business, rather than the larger multi-tenant strip his malls.

“We need to pivot and charge market-leading rents to justify construction costs[for multi-tenant properties],” said Lyons.

Similarly, refurbishing old buildings for new uses is more popular in the retail market, he said, because it saves costs on new construction.

Between labor shortages and supply chain issues, Perich said there are problems with increased supply in certain areas of the city.

“We have some negative headwinds that continue to cap our ability to add more supply quickly,” Perich said.

the city grows

CBRE’s Smith said many developers and companies are venturing into “tertiary” markets like Albuquerque. Take, for example, Amazon’s foray into Albuquerque last year.

“Amazon expanded into this market a year ago,” says Smith. “In LA, Dallas and Seattle, we were already building warehouses, so there was no need to expand. Let’s do it.”

Between June 2021 and 2022, Bernallio County collected an additional $51 million in gross revenue taxes. This is an increase of about 22%.

“We are very excited because the Albuquerque area economy is expanding very well,” Lyons said. “After years of sluggishness, it’s not flat. And I think that’s great for our city.”

Arnold agreed.

“I’m bullish on Albuquerque,” Arnold said. “I think Albuquerque still has a lot of growth. I think our projections are good.”

Robertson said his warehouse was flying off the shelves, but said the market could level out eventually.

“It’s cyclical and it changes,” says Robertson. “At some point, the story has a rosy ending.”