Albuquerque Multifamily Prices Rise on Heels of Rental Rate Increases
The New Mexico multifamily market, more specifically Albuquerque, recorded an impressively strong 2016 with vacancies dropping below 5 percent. Asking rents have increased for three consecutive years, fueling the investment market both in volume and prices.
Employment grew by 2,700 jobs in Albuquerque last year. More than 2,000 of those were added in the fourth quarter, making it the strongest employment growth quarter in more than four years. Mining, logging and construction led the way in job creation, growing their sectors by nearly 8 percent. Professional, business services and the hospitality sector also strengthened on the job front. This expansion drove demand for multifamily units, pushing vacancy downward.
The vacancy rate in Albuquerque declined 60 basis points in 2016, following a 100 basis point drop in 2015. Rents dropped slightly in the fourth quarter, but year-end 2016 asking rents were up 4 percent over 2015 to an average of $776 per month. Rent growth in the area has averaged 2.7 percent per year since 2014.
Developers stepped up to the plate in 2016, answering the demand for more units. The market received 675 new units with about 1,000 more currently under construction. One of the new highly anticipated projects is the Broadstone Northpoint community being developed by Titan Development. This 226-unit, Class A project is situated on 10 acres in the north I-25 neighborhood. Construction commenced in November 2016. This development reflects the nationwide trend toward luxury amenities. Units will feature crown molding, nine-foot ceilings, oversized closets and open kitchen floor plans. The property will also contain detached garages, a fitness center, business center and resort-style pool facilities. These types of projects are in high demand by tenants and investors alike.
The sales of multifamily communities picked up pace in the fourth quarter, more than doubling the sales of the third quarter. Sales activity rose more than 40 percent in 2016 over 2015 levels. Projects containing a total of 1,800 units changed hands last year. Prices also rose to a median level, topping $85,000 per unit. This marks a 23 percent increase over the median price in 2015. The high-end spectrum properties at $10 million or higher were a little slower to sell in 2016. The median prices, however, still rose significantly from a median price of $87,700 per unit to $126,500.
The value-add segment of the market was particularly active during 2016. Very popular submarkets are seeing investors in search of properties built during the 1980s and 1990s that can be modernized for upside appreciation. An example of this is the highly sought after Northeast Heights neighborhood of Albuquerque. This area is particularly coveted and rarely can you find a raw parcel for development. The Presidio at Northeast Heights was sold this past year, exemplifying this trend. The previous owners neglected the asset to the point that both interior and exterior renovations were needed. The property sold well above the median price and cap rate for the city, and renovations to the property have been warmly embraced by tenants.
Additional rental rate gains are expected throughout 2017 in Albuquerque. Strong conditions continue to drive the investment market where activity levels are dynamic and prices are rising. Investor demand should be healthy this year, but interest rate hikes could add some uncertainty by influencing cap rates and transaction volume.
— By Cynthia Meister, Associate Banker, Colliers International. This article first appeared in the May 2017 issue of Western Real Estate Business magazine.