Albuquerque Metro Commercial Vacancies at Multiyear Lows

Falling retail vacancies were assisted by new businesses such as Duke City Harley-Davidson, BuyBuy Baby (shown) and the Stumbling Steer.
The year started well for commercial real estate in the Albuquerque metro area, with vacancy rates dropping to a two-year low for the beleaguered office market and a four-year low for the industrial market, according to Colliers International.
At a vacancy rate of 7.5 percent in the first quarter, the metro’s retail market continued to be the only commercial property type in the metro to outperform the national average of 9.8 percent as of the fourth quarter.
“We’ve had very patient absorption of commercial space,” said Steve Maestas of NAI Maestas & Ward, a commercial real estate services firm in Albuquerque.
“If you think about it, in broad brush strokes, we haven’t put any new product on the market since pre-crisis. Now we’re five, six years out. We’re getting to the point where growth will dictate new projects being built, particularly for top-tier tenants.”
The retail market, which appears fully recovered from the recession, may be hitting a wall because of the lack of significant new projects scheduled for opening this year, the Colliers’ retail report observes. There’s also a shortage of anchor store spaces in growing locations, it says.
“The end result is national retailers who need to open stores before the next holiday season have to target other cities in the region,” the report says.
More Renovations
The lack of significant new construction is generating more renovations and remodels of existing shopping centers at good locations, said Ken Schaefer, research director at Colliers’ Albuquerque office.
Albuquerque’s office vacancy rate dropped to 18.4 percent from a roughly 25-year high of 21.2 percent in the first quarter of 2013. In its just-released office research report, Colliers attributed the decline in part to more lease deals involving moderately large amounts of space.
“Starting to recover is the appropriate way to put it,” said Scott Whitefield of Colliers. “It’s encouraging to see, but we’re in a fragile state right now. There’s a lot of moving parts out there.”
The metro saw the positive absorption of 80,547 square feet of office space in the first quarter, the largest amount since the fourth quarter of 2009, Colliers data show. Positive absorption means that more space was occupied than went vacant.
“If we did 80,000 square feet every quarter, we’d make some headway,” said Scott Throckmorton of Argus Investment Realty in Albuquerque.
At an absorption rate of 80,000 square feet a quarter, it would take just over 3½ years to get the office vacancy rate down to 10 percent.
North I-25 Recovery

Reconstruction of the I-25/Paseo del Norte interchange progresses in the North I-25 submarket. (Journal File)
The first quarter’s 18.4 percent vacancy is where it was in the first of quarter of 2012, but still substantially higher than the average quarterly rate of 15.4 percent from 2004 through 2013. The average vacancy rate nationwide was 14 percent in the fourth quarter, the latest period where it’s available, Colliers reported.
Leading the way in the early recovery is the North I-25 submarket, which is the metro’s biggest office submarket straddling Interstate 25, north of the Big I. The area’s office vacancy rate was 13.4 percent in the first quarter, the lowest it’s been since mid-2009.
“When you’re out touring with prospective corporate tenants, that’s the area they’re looking at most closely,” Throckmorton said.
With a 27.7 percent vacancy rate – the highest of any major office submarket in the metro – Downtown has improved from the first half of 2013, when its 31.5 percent rate was the highest of any central business district in the country.
Downtown traditionally carries a high vacancy rate: 18-20 percent was typical in the mid-to-late 2000s, while the metro’s overall rate generally was running in the 11-14 percent range. Downtown’s vacancy rate averaged a low of 13.8 percent in 2001, before a mass exodus of federal agencies to more suburban locations.
A Downtown Positive
By another measure – availability rate – Downtown is not the worst office submarket in the metro. Availability rate includes more than just vacant space. It also factors in available sublease space and, to a lesser extent, other types of space in transition.
Downtown’s availability rate was 26.4 percent in the first quarter, lower than the 36.3 percent for the Airport submarket and 27.1 percent in Uptown.
A contributor to Downtown’s lower availability rate was the state’s first-quarter purchase of 62,280-square-foot Plaza Maya, empty for 10 years, for use by agencies within the Corrections Department, Schaefer said. The purchase removed the building from the inventory of available office properties.
Concentrated in a roughly one-square-mile area north of the Louisiana NE and Interstate 40 interchange, the Uptown office submarket’s vacancy rate was 20 percent in the first quarter. Uptown’s vacancy rate has been upward of 18 percent for three years.
“You’ve got a concentration of vacancies in four or five buildings,” Throckmorton said. “Most of the rest are 95 percent (occupied) or higher.”
But enough of Uptown’s occupied space is available for sublease due to corporate downsizings that the submarket’s availability rate is 27.1 percent, which is surprisingly high given that Uptown, at 9.3 percent, had the metro’s lowest average office vacancy rate during 2006-08 boom years.
Airport Area Rates

Presbyterian Healthcare Services is relocating to this campus near Balloon Fiesta Park.
The metro’s fourth-largest office submarket, the Airport area’s high availability rate is based largely on the planned relocation of Presbyterian Healthcare Services’ administrative offices from 323,541 square feet of leased space near the airport to a corporate-owned campus near Balloon Fiesta Park.
Not including Presbyterian’s soon-to-be-vacated space, the Airport submarket’s vacancy rate is a low 13 percent.
The local industrial vacancy rate dropped from 10.2 percent in the first quarter of 2013 to 8.9 percent this year, dead on with its 10-year average of 8.9 percent from 2004 through 2013. The average industrial vacancy rate nationwide was 8.1 percent as of the fourth quarter, according to Colliers.
The pace and median size of lease deals in the industrial market has held steady for the past four quarters, said Jim Smith of CBRE, a commercial real estate services firm in Albuquerque.
“We’re kind of status quo,” he said. “There’s positive activity, but it’s not going great guns.”
The first-quarter drop in the industrial vacancy rate was attributable to several larger-than-usual lease transactions and one purchase, Schaefer said. He said the transactions included:
• Gastonia, N.C.-based U.S. Cotton, a manufacturer and distributor of cotton products, leased 63,428 square feet at the Fulcrum Building, 4321 Fulcrum Way NE in Rio Rancho.
• Locally owned Rogers Plumbing & Heating Inc. purchased the 50,234-square-foot former Fox Manufacturing plant at 5105 Williams SE in the South Valley.
• Nexius Solutions Inc. of Allen, Texas, which provides wireless and software services to businesses, leased 46,028 square feet at 1 Claremont NW.
• Corrales International School, a charter school opened in 2008, leased with an option to buy the 23,500-square-foot former Direct Buy building at 5500 Wilshire NE.
• The University of St. Francis, which offers two health-care programs and is currently in the Highland High area, leased 19,380 square feet at 1500 Renaissance NE.
By: Richard Metcalf (Albuquerque Journal)
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