The Albuquerque metro area’s economy continues to play out in the commercial real-estate market, reflecting in bricks and mortar the challenge of rebuilding the labor force while pink slips continue to be handed out.
The 323,541-square-foot Albuquerque Office Park, shown here, originally built for federal contractor BDM and most recently Presbyterian Healthcare Services headquarters, is now for sale at an asking price of $28.74 a square foot. (Courtesy of Joel White)
The vacancy rate for offices ended the year at 19.3 percent, up from 18.9 percent in the fourth quarter of 2012 but down from 19.6 percent in the preceding third quarter, according the latest market data from Colliers International.
The office market, which had an average vacancy rate of 12.3 percent in 2005-08, tends to thrive or dive with the job market.
The vacancy rate for industrial real estate such as warehouses and R&D buildings ended the year at 9.3 percent, down from both 10.3 percent in the fourth quarter of 2012 and 9.9 percent in the preceding third quarter, Colliers reported. The industrial market’s average vacancy rate was 7.8 percent in 2005-08.
The retail real-estate market appears to have fully recovered, sporting its lowest vacancy rate in six years at 7.6 percent in the fourth quarter.
According to the Chicago-based CCIM Institute’s Quarterly Market Trends report for the fourth quarter, the average vacancy rates nationwide were 15.6 percent for office, 9.2 percent for industrial and 10.4 percent for retail.
Compared to signs of a national economic recovery, the turnaround in Albuquerque’s economy appears hesitant, which is particularly evident in the office market. The local office vacancy rate approached 4 percentage points higher than the national average at year end.
“There are silver linings to everything and we can try to be optimistic, but the improvement we expect to see in 2014 is not going to be substantial,” said John Ransom, managing director of Colliers’ Albuquerque office.
“We’ve been fortunate but too reliant on the government for jobs,” he said. “The question is what’s going to be the next spark (in the local economy)?”
In addition, commercial real-estate brokers point to the fact that Albuquerque has a lot of old, obsolete office, industrial and retail properties that nobody wants to rent – at least not without an infusion of renovation money. Those properties prop up vacancy rates.
“It’s not that we’re overbuilt, but under-demolished,” Ransom said.
The month-over-month improvement in the office vacancy rate during the fourth quarter was based largely on one large deal, Blue Cross and Blue Shield of New Mexico’s expansion into 84,724 square feet at The 25 Way, said Ken Schaefer, director of brokerage services at Colliers’ Albuquerque office.
The 25 Way mixed-use business park is in the Albuquerque’s strongest and biggest office submarket, the North I-25 corridor which straddles Interstate 25 north of the Big I. The vacancy rate was 14.2 percent at year end, down from 18.5 percent in the fourth quarter of 2012, according to Colliers.
“The North I-25 (corridor) has the newer product – more energy efficient buildings, fiber (optics) and ample parking – with good access from both sides of the river,” said Terri Dettweiler of commercial real estate services firm CBRE.
The North I-25′s popularity reflects a continuing trend in the office market for companies to house more employees in less space, thus saving on the overhead costs of leasing, she said. As a result, contemporary buildings designed with open layouts, suitable for so-called “cube farms,” see more demand.
The Downtown office submarket is a different story. The year-end vacancy rate was 29 percent at year end, an improvement over 32.2 percent in the third quarter when Albuquerque had the distinction of having the highest office vacancy rate of any city’s central business district in the country.
“The problem is not Downtown being Downtown,” said Tom Jenkins of Real Estate Advisors. “The problem is the aging inventory.”
Improving the Downtown office market will take more than building more parking garages, he said. Many of the office buildings are basically tired and in need of upgrades to infrastructure like heating and cooling systems and elevators, he said.
Overall in the office market in the fourth quarter, Schaefer said leasing activity was “a mixed bag with positives outweighing the negatives. Growing deal activity is setting up the next two quarters for positive absorption (of vacant space).”
In the third quarter, however, the office market could take a big hit when Presbyterian Healthcare Services vacates most of its 323,541 square feet of leased space at the Albuquerque Office Complex near the airport. Presbyterian is moving to a corporate-owned headquarters near Balloon Fiesta Park.
That big of a vacancy hitting the market could push up the office vacancy rate by 2.3 percentage points, Colliers has said. While leased space is tracked as part of the office market inventory, owner-occupied buildings like Presbyterian’s new headquarters are not.
Originally built for a predecessor firm of Northrop Grumman in 1980-88, the four-building Albuquerque Office Complex is not currently being marketed for lease. A team of brokers at Sperry Van Ness/Walt Arnold Commercial Brokerage has listed it for sale at an asking price of $9.3 million.
Improvement in the industrial vacancy rate is based less on positive moves in the market, as in empty space filling up, and more on fewer negative moves from downsizings and closings, said Jim Smith of CBRE.
“Space vacated in 2013 – about 1 million square feet – was half the space vacated in 2009,” he said. “What that says, especially for a smaller market (like Albuquerque) with not a lot of business growth, is most businesses that decided to downsize have done so.”
An uptick in construction activity, most of it in multifamily and retail projects, has given the industrial market some buoyancy, Schaefer said. Construction-related businesses, including contractors and suppliers, have traditionally been a major user of warehouse space in the metro.
The metro’s construction sector gained back lost jobs for much of 2013, but the preliminary count of 19,900 jobs as of November is still well below the peak of 31,700 in mid 2007, according to state labor data.
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