Albuquerque Commercial Real Estate Market Flirts With Recovery

Commercial real estate, which includes the retail, office and industrial property types, continues to flirt with a recovery from the economic downturn in the Albuquerque metro area, according to new third-quarter data from the local office of Colliers International.
The retail real-estate market, which appears to be the strongest of the commercial property types, slipped a little with its vacancy rate rising from a six-year low of 7.7 percent in the second quarter to 8 percent in the third quarter. The retail vacancy rate was a much-higher 8.6 percent in the third quarter of 2012.
The biggest contributors to the month-over-month increase were the closings of the Kmart store at 9500 Montgomery NE, near Eubank, and the John Brooks Supermart at 5555 Zuni SE, near San Mateo, said Ken Schaefer, director of brokerage services at Colliers’ Albuquerque office.
While the metro’s retail sector largely has bounced back, certain categories of retailers are well off their pre-recession levels in terms of number of establishments.
In a September report on the statewide retail sector, the state Department of Workforce Solutions identifies the struggling categories as furniture and home-furnishing stores, building-material and garden-supply stores, clothing stores, sporting-goods stores and books/ music stores.
Some categories — food and beverage, for example, and health and personal care — made it through the tough times with barely a blip.
From a real-estate perspective, the recent trend among successful local retailers is to move up to better locations, Schaefer said.
Office market
The office market’s vacancy rate dropped to 19.6 percent in the third quarter from 20-year highs of 20.2 percent in the preceding second quarter and 21.2 percent in the first quarter, according to Colliers. The vacancy rate was 18.9 percent in the third quarter of 2012.
Coming on the heels of a 1 percentage-point drop in the office vacancy rate from the first quarter to the second quarter, the 0.6 percentage-point drop in the third quarter is “among the largest drops in more than four years,” said Marguerite Haverly, an office broker at Colliers.
“Tenants are absorbing larger blocks of space than we’ve seen in a long time, locking in longer-term leases,” she said.
The local office market particularly was hard hit by the recession-induced shrinkage of the metro’s workforce, which is still roughly 29,000 jobs short of its record high of nearly 400,000 jobs in the spring of 2008, according to state labor data. Since it takes people to fill up office space, the market is particularly sensitive to hiring.
Of the big office deals announced recently, only one — Molina Healthcare of New Mexico’s expansion into 47,528 square feet at Journal Center — actually has taken place and thus helped to lower the third-quarter office vacancy rate.
Still in the works are Blue Cross and Blue Shield of New Mexico’s expansion into 84,724 square feet at The 25 Way, a business park at the Jefferson and Interstate 25 interchange, and Canon U.S.A.’s opening of a call center in 33,682 square feet at 4041 Jefferson Plaza NE. The Blue Cross and Canon deals will affect the office vacancy rate in future quarters.
Looming as a negative in the office market is Presbyterian Healthcare Services’ plan to vacate 323,541 square feet of leased space in the Albuquerque Office Complex, a business park in the airport area, by mid-2014.
That much leased space going empty will trigger a jump of 2.29 percentage points in the office vacancy rate, Schaefer reported. That big of a jump likely will wipe out improvements in the overall office market since the first quarter.
Presbyterian is relocating to a 326,000-squarefoot, corporate-owned headquarters at 9521 San Mateo NE, near Balloon Fiesta Park. Its leased space near the airport is already being marketed for replacement tenants by a team of brokers at Colliers.
Industrial space
The industrial vacancy rate dropped to 9.9 percent in the third quarter from 10.1 percent in the preceding second quarter and 10.1 percent in the third quarter of 2012, according to Colliers.
“We’re looking better than we have,” said Jim Smith, industrial broker at real-estate services firm CBRE. “There are some incremental improvements.”
Noting the metro has seen five consecutive months of overall job growth through August, Smith cited state data that show employment sectors that utilize industrial space — manufacturing, wholesale trade and transportation, warehousing and utilities — have continued to experience job losses.
Only the construction sector, which once generated substantial warehouse use in the metro, is seeing job growth.
A noteworthy move in the industrial market during the third quarter was Stolar Research Corp., formerly of Raton, occupying a 23,500-square-foot flex building at 7701 Innovation Way NE in Rio Rancho. A supplier of radio geophysics detection and imaging equipment, Stolar employs about 25.
In one of the biggest moves of the year in the industrial market, Worland, Wyo.-based Admiral Beverage recently relocated its Albuquerque operation to a new corporate-owned 219,000-square-foot distribution center on 41.5 acres at Rio Bravo and Prince SE in the South Valley.
Admiral Beverage’s previously occupied 92,635-square-foot warehouse at 701 Comanche NE, west of the American Home warehouse, has not yet been counted as vacant on a technicality. Admiral is still paying on a lease for the property that doesn’t expire until year end, said John Henderson III of NAI Maestas & Ward.
Henderson said the Comanche warehouse, which has 10,000 square feet of office and about 8,900 square feet of refrigerated space, is a prime distribution property because it is actively rail served and sits on 8.7 acres near the interstate. He said he is marketing the property for a single user.
The new Admiral and Stolar buildings are contributing to a miniconstruction boom in the metro’s industrial market, according to CBRE’s third-quarter Industrial MarketView report. All of the new projects are being built by the owners.
“Total new construction completed this year will likely be 430,000 square feet, which is the most square footage completed since 2008,” the report says.
By: ENR Southwest  (ENR Southwest)
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