Archives for June 2023

Central New Mexico Community College (CNM) is constructing a new skilled trades facility to help supply the demand for labor in welding; plumbing; heating, ventilation, and air conditioning (HVAC) and mechatronics.

The building will replace the 50-year-old Ted Chavez Hall and will be located at 961 Buena Vista Drive SE. Following construction, Ted Chavez East and West will be torn down.

The new facility is 60,750 square feet and costs $58.7 million, said Project Manager Maia Mullen. Funding for the project came from voter-approved bonds and the State General Fund approved by the New Mexico Legislature, according to CNM Executive Director of Physical Plant Marvin Martinez.

The new facility is yet to be named. Vigil and Associates, Architekton and Franken Construction will construct the project. Mullen said construction is set to be completed by the start of fall classes in 2025.

“The new facility is to take our skilled trades programs to the next steps with the advancement of technologies and where skilled trades are moving to,” Martinez said.

A few years ago, CNM completed a facility conditions assessment, whereby engineers and architects evaluated the school’s building infrastructure. Based on the report, Martinez said school officials found it more cost effective to construct a new facility instead of remodeling Ted Chavez Hall.

In addition to the architects and contractors involved in the project, Albuquerque Public Schools, University of New Mexico, Rio Rancho Public Schools, the Economic Development Forum and Albuquerque Regional Economic Alliance all took part in the building’s visioning process.

The new building will be made up of two single-story buildings. Labs can shift in size to respond to changing needs of instruction, Mullen said. The facility is designed to adapt to the needs of future job demands, she added.

This fall, CNM expects to admit 30,000 total students, and the school has seen a high interest in welding and health care classes. They currently have a waitlist for their welding program, only admitting 90 students per term due to a lack of lab space, Chief Strategy Officer Angela Sims said.

CNM has a total of seven campuses throughout the state. The school designs each campus based on the skillset students will learn. Students at CNM have access to more than 80 programs including aviation mechanics, taught at the school’s Advanced Technology center, located at 4700 Alameda Blvd. NE.

Source: “Central New Mexico Community College to replace Ted Chavez Hall with skilled trades facility“

Between slowing consumer spending and declining tenant demand, the industrial market across the United States is off from last year’s peak. However, one market still stands out as a growth driver.

Savannah, Georgia, is now the fourth-biggest port by cargo volume in the country, and despite facing challenges like other industrial markets, Savannah benefits from a unique set of factors that position it for sustained growth through the national industrial downshift.

“Savannah has had a slower response to the pent-up demand for Class A warehouse space,” Bartell Hardison and Michael Reid, Atlanta-based senior managing directors at Newmark, told LoopNet in an email. “Now, the market is experiencing a historic injection of much-needed modern supply for tenants to lease, and leasing volumes have demonstrated clear tenant appetite.”

As Gulf and East Coast seaports steadily gain market share from West Coast ports thanks to infrastructure investment and shifts in global supply chains, Savannah is emerging as a major industrial hub that defies national trends.

At 4.2%, Savannah by far leads the pack when it comes to year-to-date net absorption of industrial properties as a percentage of occupied inventory, according to data from Newmark. That rate is more than double any other market in the country this year. Absorption remains strong despite a robust construction pipeline of more than 21 million square feet, according to CoStar, the publisher of LoopNet.

“Though consumer spending on goods has begun to level off, the Port of Savannah is one of the fastest-growing ports in the U.S.,” said Chuck McShane, a Charlotte-based director of market analytics at CoStar, in a June report.

Savannah is also among the top 10 markets in industrial rent growth, hitting an eye-popping 25% increase in the first quarter over the same period in 2022, according to Newmark. Experts still think there is runway for more rent growth in Savannah, given its attractive market rates ($7.81 per square foot in the first quarter of 2023) compared to the nearby ports of Jacksonville ($9.19) and Charleston ($9.61), not to mention New York ($18.37) or Los Angeles ($18.80).

“In addition, some large occupiers spanning multiple markets are consolidating into single or fewer facilities with an eye towards value — in which case, Savannah’s lower cost of real estate, labor and doing business will be a benefit,” The Newmark directors said.

The market share based on cargo volume for Gulf and East Coast seaports rose from 42% to 52% from 2007 to 2021, according to Newmark.

Savannah handled more than 5.7 million 20-foot equivalent units — an industry measure of cargo volume roughly analogous to a shipping container — in 2022, but active infrastructure investments point to more cargo capacity in Savannah’s future. A harbor deepening project expected to accommodate hundreds of thousands more containers was completed last year, and Savannah’s Jasper Ocean Terminal, which is currently under construction, is expected to be the largest in the country when it opens in 2035.

The market’s manufacturing base is poised to grow after the announcement of Hyundai’s $5.5 billion electric vehicle facility in Bryan County, Georgia, which will eventually employ 8,100 people across 17 million square feet. Savannah should continue to attract tenants that prioritize supply chain optimization and cost consciousness, McShane wrote.

While availabilities may currently be limited for smaller investors, there are still opportunities, especially for well-capitalized cash buyers. A historic pipeline of projects is set to deliver, creating more opportunities as supply modestly outpaces demand. Smaller industrial tenants can also benefit from Savannah’s lower real estate and labor costs. Savannah’s average industrial sales price per square foot is $119 — well below the national average of $137 per square foot.

Pricing discovery is still ongoing, but Hardison and Reid project Savannah’s industrial capitalization rates to be close to 6%.

While Savannah’s industrial market shows strong momentum, some factors warrant caution.

First, there’s the supply surge. While Savannah’s robust construction pipeline addresses pent-up demand for distribution space, the market is also the most construction-intense in the country. The more than 20 million square feet of projects underway represents about 19% of Savannah’s total inventory, the highest rate in the United States. Most of these new projects are speculative but do tend to lease up quickly. The largest industrial construction project in Savannah, a 1.5-million-square-foot distribution center opening in July, is pre-leased to Lowe’s.

However, leasing activity is slowing as the market enters the second half of 2023. This is a development that coincides with increased new deliveries and suggests a temporary lull in tenant demand as consumer spending levels off.

Vacancy rates are likely to fluctuate thanks to this new supply. While the current vacancy rate in Savannah stands at 4.1%, well below its pre-pandemic average, market participants should carefully monitor any increases in vacancy caused by the upcoming short-term supply surge. Savannah’s strong rent growth may not be sustainable long term with so much new supply.

Industrial properties were the hottest asset class during the pandemic, but the national market is slowing down as we head into mid-2023. Adrian Ponsen, CoStar’s national director for industrial market analytics, wrote in a June report that the next six to 12 months could prove one of the more challenging periods for the sector over the next five years.

Oncoming new supply is “all but certain” to push up the national vacancy rate, which currently sits at 4.7%. The national industrial vacancy rate is still expected to remain below the 20-year average of 7.3%, but slow rent growth seems certain given that landlords will be contending with a record amount of newly-built space. Rent growth has already begun to decelerate from peak quarterly rent growth in mid-2022.

However, construction starts on new industrial projects have also been slowing since last fall, with developers increasingly concerned that higher interest rates are causing the values of newly delivered projects to dip below replacement costs. In short, Newmark said, market fundamentals are normalizing while debt costs have markedly increased.

This may well set the stage for vacancies to stabilize or begin tightening again by late 2024, and for rent growth to begin accelerating again, particularly if the global economy is emerging from its current slowdown.

Overall, Savannah’s industrial market offers landlords favorable pricing power, supported by strong leasing activity and high tenant demand. While rent growth is expected to cool in the future, the city’s rental rates remain attractive compared to neighboring port cities and offer competitive opportunities for businesses seeking industrial space in the region.

With attractive rental rates, opportunities for investors and tenants, and unique growth drivers, Savannah has firmly established itself as a thriving industrial hub, defying national trends and solidifying its position as a standout market in the industrial sector.

Source: “Despite National Slowdown, This Industrial Market Surges Forward“

May 2023 brought some unpleasant news for landlords and developers. For the first time in Realtor.com’s data history, there was a year-over-year rent decline for 0-2 bedroom-units since numbers started to be tracked three years ago. The two-bedroom properties dropped 0.5% to $1,923, which was $10 lower than a year ago and $47 lower than at the July 2022 peak.

Smaller apartment units, meanwhile, saw rents increase with studios going up 2% to $1,463 year-over-year and one-bedrooms climbing 0.4% to $1,628 over the same period.

When it comes to rent growth, the larger unit rents showed the highest growth rate over the last four years, up by $417 or 26%. For one-bedroom units on a YOY basis, the rent growth was 0.4% this past May. In contrast, rent growth for studios was 2.0%, indicating that renters have prioritized affordability with studios outperforming the larger two-bedroom units during the last 10 months.

How Location Factors 

Rents are headed down in the South where they dropped 0.7% from a year ago. The top Southern markets showing the biggest YoY rent declines were Austin at -5.6%, Tampa at -4%, Dallas at -3.6%, Charlotte at -3.5% and Atlanta at -3.1%. In the West, the decline was 3% lower than a year ago. San Jose, Calif., was the only large metro in that region seeing rent growth, but it was only one-twentieth of what it was a year ago.

In the Midwest, rents slowed but continued to increase 4.5% year-over-year. The growth is said to be due to markets in the Heartland offering greater affordability. Six of the top 10 metros experiencing faster YoY growth are located there, including Columbus at 9.3%, St. Louis at 7.7%, Cincinnati at 7.5%, Indianapolis at 7.3%, Milwaukee at 6.2% and Detroit at 5.1%.  As renters search for affordable units, Midwestern metros that offer the lower-rent options are expected to experience stronger demand, which, in turn, will lead to accelerated rent growth.

The densely populated northeastern metros such as New York City, Pittsburgh and Boston tell another story. They continued to experience faster growth with NYC at 6.8%, followed by Pittsburgh at 3.8% and then Boston at 3.3%. Realtor.com’s possible explanation is that the areas there have a robust labor pool, which may have contributed to increased demand for rental housing.

Looking Ahead

Overall, the median asking rent was $1,738, which was down by $38 from July 2022’s peak but up by $3 from April 2023 and $344 or 24.7% higher than the same time before the pandemic in 2019. The 2023 mid-year forecast has led to projections that the median asking rents will show a small annual decline at a rate of -0.9%, but in the second half of this year, demand for rental properties is expected to remain strong. Part of this is due to fewer renters opting to buy a home with housing prices and mortgage rates remaining high. Many of these renters have a strong incentive to remain put to save money and be able to act when the situation changes.

Source: “Apartment Rents Decline YoY for First Time“

Fresh confirmation, if it was needed, that the U.S. office market is in trouble comes from recent data on vacancy compiled by CommercialEdge in a June 2023 report.

“The national office vacancy rate in May was 17%, up 30 basis points over the previous month and 160 basis points over the prior year,” the report notes. Even higher rates were recorded in tech markets such as Austin (20.6%), Denver (20.24%) and San Francisco (20%). Vacancy rates in Seattle rose 3.8%, with a sublease vacancy rate of 4.3%.

Markets with the largest share of remote work also saw the highest spike in vacancies.The national average rent nevertheless rose during the month. The U.S. average full-service equivalent listing rate was $38.36 per square foot in May – up 2.1% year over year and up 13 cents from April. Rates for class A and A+ office space increased 1.7% above the prior year to $46.93 per SF, class B rose 0.3% to $30.38, and class C was up 0.7% to $23.27.

The rate for the top listing in Denver was up 1% to $28.86 year over year — even though vacancy in the metro area rose 3% and it was hit by the loss of 12,000 jobs in the financial activities and information sectors during the year. Other areas with increased rates for the top listings were Washington, DC, Tampa, and Portland, while Chicago and Los Angeles had more modest rate boosts.

In other cities, the trend was definitely more negative. In Brooklyn, for example, the top listed property in April brought $50.71 per SF – down 7.6% or 20 basis points from the previous year. Charlotte experienced a similar percentage drop, down 260 basis points to $29.09. Top listing rates in the Bay Area, Dallas, Miami and Houston were also lower compared to 2022.

Offices in suburban areas benefited from the highest rent increases, rising 3.8% year over year to $30.93 per SF. Interestingly, rents for offices in CBDs rose 2.5% to $51.16 per SF – while urban office space fell by 2.8% to $44.09 per SF.

The exception to the generally gloomy picture of office vacancies was the life sciences sector. In San Diego, for example, the report attributes higher asking rates reaching $47.83 per SF to this industry. San Diego’s inventory will expand by 10% when 4.9 million SF of office space under construction – or 5.3% of its existing stock — is completed. The only metros with higher rents were the Bay Area, San Francisco, and Manhattan.

Generally, office markets in the Midwest were the most affordable among the 25 U.S. metros studied. Leasing rates in Chicago, Minneapolis-St. Paul, Orlando, and Dallas-Fort Worth were among the lowest in the nation.

The report describes Austin as “one of the most puzzling markets.” It is leading the back-to-office movement but at 32% also has one of the nation’s highest shares of remote workers and a 4.4% increase in vacancies since 2022. Its listing rate of $42.40 per SF was second only to Miami in the South, and followed by Washington, DC.

In the Northeast, Manhattan far outpaced these rates, with asking rents of $73.57 per SF — but an average vacancy rate of 17% growing faster than anywhere else in the region. In Boston, the asking rate was $34.91, but the vacancy rate was only 10.3%, thanks to its booming life sciences sector. An additional 15.2 million SF of office space is under construction in the metro. Philadelphia recorded the lowest asking rent in the region at $31.11 per SF.

Source: “Office Vacancy Rate Rises 30 Basis Points in One Month“