Archives for January 2024

In October, Shona Martinez joined CBRE as a senior associate, specializing in office landlord and tenant representation. Martinez has more than 14 years of combined experience working for commercial real estate and financial services companies in the U.S. and the United Kingdom.

Prior to joining CBRE, Martinez was a vice president at Colliers, where she completed more than 700,000 square feet of lease transactions and property sales in New Mexico.

Albuquerque Business First talked with Martinez about commercial real estate in 2024.

Albuquerque Business First: What is the biggest trend going into 2024 for industry or commercial real estate?

Shona Martinez: We specialize in office, and so what we’re seeing is tenants are moving into smaller footprints. That’s kind of the general trend across the country right now. However, there are tenants in the market that don’t want to give up their space, so we are also seeing a lot of shorter-term renewals. We see that more so in the class A type of space, whereas tenants are happier to vacate the B and C space. But the issue is that there’s a lack of inventory for the class A space and unfortunately, due to construction costs, it just doesn’t pan out to build a new class A building right now.

Do you think the real estate industry in New Mexico is in a better state compared to other markets? Because we’re a tertiary market, we don’t see the immediate impact of booms and crashes. We tend to feel that later on, so it’s much more of a steady market. Up until recently, we really haven’t seen much of an increase in costs. Now, we are seeing a bit of an increase due to a lack of inventory and an increase in expenses. After the pandemic, nothing costs the same.

Do you have any advice for brokers organizing deals in 2024? Patience. Everything is taking so much longer and you can’t give up hope. It’s good to be a generalist. Learn a specific entity within the industry. If I’m a company owner and I need office space, I want to look for a broker who specializes in office, not industrial or land.

Source: “CBRE broker says smaller footprints, shorter-term office renewals trends to watch in 2024“

With demand muted and speculative construction completions persisting at a healthy rate, the  industrial vacancy rate has crossed the 5% threshold after ticking up by 60 basis points to 5.2%, according to Cushman & Wakefield’s Q4 industrial report.

The rate has not been this high since Q3 2020, but it remains 120 basis points below the long-term 15-year average of 6.4%.

Jason Price, Head of Logistics & Industrial Research at Cushman & Wakefield, said in prepared remarks that while the new development pipeline has exceeded demand, he is “clearly” seeing signs that construction is slowing in response to market conditions and tempered absorption totals.

“Leasing velocity remains steady but occupiers continue to shed excess space in some markets, leading to slower growth,” he said.

Absorption was positive in 58 of the 83 markets Cushman tracks. Of those, 19 topped 1 msf of occupancy gains, led by Houston (6.4 msf), the PA I-81/I-78 Corridor (4.9 msf), the Inland Empire (3.5 msf), and Las Vegas (3.2 msf).

Rental growth slowed, too, given the backdrop of rising vacancies coupled with tempered demand, Price said. On an annual basis, it moderated to 10%, the fifth consecutive quarter it did so on an annual basis.

Rent growth was strongest in the Northeast at 16.1%, year over year. The other three regions posted annual growth rates from 5.5% to 6.6%.

“We expect rent growth throughout most of the country to continue to slow in 2024 as we previously forecast,” Price said.

Savills sees potentially lower supply and possibly lower vacancy rates by late 2024.

New leasing activity remained steady at 133.8 msf, down just 2% since the Q3 total, according to the report.

Source: “Analysis Industrial’s Vacancy Rate Tops 5% for First Time in Three Years“

As the New Year rolls in, 2023 is hanging on when it comes to multifamily rent growth. Apartment List reported that the market closed in December with national median rent dropping 0.8% to $1,379. That was the fifth month in a row in which rent growth was negative.

Year-over-year growth has dwindled to -0.1%, making apartment rents a little less expensive than the same time last year. The previous two years saw double-digit rent increases, peaking at 18%. On the whole during 2023, rents were down 0.7%. That compares to the period of 2017 through 2019 when full year rent growth was an average 2.6%. In 2020, rents fell by 1.3% while 2021 had a big increase of 17.6%.

“But despite this cool down, the national median rent is still nearly $250 per month higher than it was just three years ago,” the report said. Because of the previous frantic rate of growth, it would take time to fall back to previous levels.

Part of the reason for the ongoing drop could be seasonality. Rents rise in spring and summer and then drop during fall and winter and this is “squarely in the midst of the rental market’s off-season, as reflected in recent price trends.”

The report said that going back to 2017 and the start of the site’s index, it was the second sharpest December drop, though that’s only seven years of data.

Another aspect, depending on the region, is increasing inventory. Their national vacancy index is 6.5%, a little higher than pre-pandemic times. Apartment List has also tracked housing construction. Development of multifamily buildings with at least five units has risen to historical levels, at least since 2000. In November, there were 988,000 of such units under construction. They expect that there will be “an abundance of vacant units on the market in the year ahead.” When supply goes up with steady demand, prices should go down. But because building patterns have followed shifts in national demographics and population movement, some metros will feel the effect more than others.

Rents fell in 83 out of the top 100 metropolitan areas, with year-over-year prices down in 60% of the full list.

“In early 2022, all 100 of these cities were posting positive year-over-year rent increases,” they wrote. “The first to turn negative were the early “zoom towns” in states like Arizona, Nevada, and Idaho that surged in popularity in 2020 when much of the nation’s workforce went remote, but saw a pullback in demand as affordable options dissipated and more jobs were called back to city centers. Since then, larger cities have joined the trend, including much of California and the West Coast, Texas, and the Southeast. Currently the sharpest year-over-year decline can be found in Oakland, CA, where prices are down 9.3 percent compared to last December.”

Source: “Multifamily Rent Growth Ends 2023 on a Falling Note“

Retail broker Ben Perich was named senior vice president and principal at Colliers International in 2022. His role involves selling and leasing commercial retail space in the New Mexico and El Paso markets. Perich serves as one of 10 board of directors for the company.

Albuquerque Business First recently chatted with him about what retail trends to expect in the area in 2024.

This interview was edited for brevity and clarity.

Albuquerque Business First: What is the biggest trend going into 2024 for the retail market?

Ben Perich: I think the trend is going to continue to be more drive-thru fast-food sites for new construction. There are a number of new concepts that are continuing to look at New Mexico that are driving some of that activity. Specific examples would be the expansion of Slim Chickens, Scooters and Dutch Bros. Retail has become challenging to finance and build new construction for non-drive-thru and non-fast-food establishments. It will continue to be hard to build new product in your traditional retail shopping centers and the apparel industry. That is a combination of interest rates, construction costs and then rents haven’t risen enough to compensate for those increased costs.

Are we still feeling the effects from the pandemic? In the retail world, the only real ripple effects that are remaining from the pandemic are labor issues, particularly low-income seasonal work. It’s become more expensive to find employment. There continues to be regulatory and statutory discussions about paid family leave and some of these sorts of costs that are increasing for employment. I think that’s really the only long-term effect.

Do you think the retail market in New Mexico is in a better state compared to other markets? Individual store sales tend to be very healthy in Albuquerque. It’s a performing market. We’re right-sized. We tend not to have too many concepts that don’t fit the market, that struggle. For example, [The] Cheesecake Factory, P.F. Chang’s and Pappadeaux’s are huge performers. Albuquerque tends to perform well from a restaurant volume perspective.

Do you have any advice for brokers organizing deals in 2024? Planning ahead and starting early is an important part of the equation. We’re still seeing major lead times on permitting issues, particularly new construction.

Source: “What will be the biggest retail trends in Albuquerque this year? Colliers broker responds.“