ABQ commercial real estate market ‘all over the place’

Commercial real estate brokers Tom Franchini, left, and Bill Robertson at a Los Lunas warehouse. (Adolphe Pierre-Louis/Journal)

When a city grows, where does it go?

With a rock bottom gap in the industrial real estate market and an increase in demand in all real estate markets, finding affordable housing around Albuquerque is getting harder.

Ongoing supply chain issues and labor shortages have led to rising costs, reduced new construction — and thus, supply — across real estate, industrial and manufacturing.

“The market is really all over the place,” said Steve Lyons, sales broker at SVN/Walt Arnold.

Sinai

The commercial industrial real estate market in particular has been plagued by historically low vacancy rates across the city, as well as across the nation. Albuquerque has roughly the same industrial vacancy rates as the national average, but has slightly less available space than similar markets.

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

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

Amid high demand, low supply and nationwide inflation, prices are rising; A recent CBRE report found that in Q3 of this year, the average rental price increased by 38%.

Robertson said many people looking for warehouses are desperate enough for a place where they will “put in” their item. And if Albuquerque doesn’t provide it, they’ll look elsewhere.

Jim Smith, CBRE’s first vice president, said there has been little new industrial construction in Albuquerque in the past decade.

But that is starting to change.

“There is certainly more speculative industrial property construction than ever before,” said Smith, who specializes in industrial property. “There was a lot of silence for almost a decade – and that has changed in the past 18 months.”

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According to an October CBRE report, there is 528,636 square feet of industrial property under construction in Rio Rancho, with a speculative project of 15,715 square feet in Rio Rancho. However, Smith noted that much of this new construction will not be used for some time. Supply chain issues have extended construction times, delaying the influx of new properties.

“Everybody needs to take their hair out,” Smith said.

Dayre

Albuquerque has a little more wiggle room in office real estate, with more rental properties than Tucson and Colorado Springs. But the number of office spaces available for rent in the city has remained stagnant for several years.

“There has been very little new supply in Albuquerque in the last 20 years,” said Walt Arnold, managing director of SVN/Walt Arnold Commercial Brokerage Inc.

A July Colliers report said there was no new office space in the city.

Steve Lyon, CCIM senior consultant, left, and Walt Arnold, CCIM, SIOR, representing SVN/Walt Arnold Commercial Brokerage, Inc. serves as managing director, takes a portrait inside the conference room at SVN/Walt Arnold Commercial Brokerage. Inc. (Chancey Bush/Journal)

Arnold said rising new construction costs have fueled demand for new office space, with more developers opting to adapt existing properties to office uses rather than build new.

But even the rehabilitation of buildings and general maintenance has increased in cost.

“Everything: taxes, insurance, maintenance, landscaping, heating, ventilation, air conditioning, all the costs that go into running an office building,” Arnold said. “But the cost of doing that isn’t going up as much as rents are going up.”

Arnold said office rents in Albuquerque have remained flat or increased slightly despite rising costs for landlords. Competition from other markets has kept rents in the city relatively cheap.

As employers evaluate how they want to use space in a post-pandemic era, Arnold sees more changes on the horizon.

“Having people in the office is what many business leaders feel is the right thing to do,” Arnold said. “And a lot of employees feel like they can work from anywhere. So I think those two dynamics are going to continue to battle each other for the next few years… As the leases start to expire, I think a lot of people will say , how much space will we need? Do we need what we have? Or can we make do with less space?

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Uniqueness

As with office space, the real estate market has a higher vacancy rate than the industrial market.

But, a national boom in new small businesses has created a demand for smaller commercial spaces, said SVN/Walt broker Arnold Lyons.

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

“It’s not as tight as the market, but it’s still very healthy, very strong,” said Ben Perich, vice president of Colliers International in New Mexico. “It’s still an owner’s market, more than a renter’s market.”

That demand is not across the market either; The best spots — Class A and new construction — fill up quickly, Lyons said. Class A office spaces are usually in prime locations, in good condition, and have more amenities than office space – and command higher rent.

But, for less desirable properties, there is a “persistent gap,” Perich said.

Lyons echoed that sentiment.

“I have some properties that are slow to lease, and then I have some properties that are 100% leased,” Lyons said.

The types of properties renters are looking for are also changing, Lyons said. He has seen more interest in smaller properties with only one business rather than large, multi-tenant centers.

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“You have to turn around and pay them the highest market rents to justify the construction costs (for multi-tenant properties),” Lyons said.

Similarly, he said that renovating old buildings for new use is more popular in the retail market because it saves some of the costs of new construction.

Between the labor shortage and supply chain issues, Perich said he’s seeing problems increasing supply in some parts of the city.

“We’ve had some negative experiences that are going to affect, you know, the ability to add more quickly,” Perich said.

The city is growing

CBRE’s Smith said many developers and companies are moving into “third-party” markets like Albuquerque — with Amazon’s Albuquerque move last year as an example.

“Amazon expanded into this market a year ago,” Smith said. “They didn’t need to expand in LA, or Dallas or Seattle, because they already had warehouses in those markets. … They’re looking at places like Albuquerque and saying, ‘Well, we don’t have a facility there, because so let’s invest in that market.'”

This Los Lunas warehouse is one of the properties featured by commercial real estate brokers Tom Franchini and Bill Robertson. (Adolphe Pierre-Louis/Journal)

Between June 2021 and 2022, Bernalillo County collected $51 million more in gross income tax — an increase of about 22%.

“I’m very excited about our Albuquerque area economy because it’s expanding very well,” Lyons said. “After years of slacking off, it’s not easy. And I think this is very good for our city.”

Arnold agreed.

“I’m excited about Albuquerque,” Arnold said. “I still think Albuquerque has a lot of growth ahead of it. I think our prognosis is good.”

Although Robertson said his stocks are off the shelf, eventually, he said the market may be.

“It’s cyclical, and it changes,” Robertson said. “At some point there is an end to the story.”

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