Albuquerque’s Office Market Struggles to Recover
The New Mexico office market heart is found in Albuquerque. During the first quarter of 2017, the Albuquerque office market has seen an increase in activity from local companies looking for newer and updated spaces, but not necessarily more space. The office market has been the last to see any type of recovery after the recession. The vacancy rate remains steady at about 21 percent. Continuing through 2017, we anticipate moderately positive absorption. Albuquerque remains over-built and under-demolished, with many office buildings being functionally obsolete. Other than two new, build-to-suit medical buildings, one being 43,000 square feet and the other being 90,000 square feet, there are not any planned speculative office buildings.
State Farm recently announced it will vacate 35,000 square feet and move its call center operations to Arizona. A multi-market, healthcare administration office has downsized from 67,000 square feet to about 25,000 square feet. These shifts will yield two properties with large contiguous spaces, an excellent opportunity for tenants with large space requirements. However, there are fewer opportunities for those looking for updated spaces. There are currently less than 10 modern office buildings for lease or sale. As such, modern Class A office buildings continue to have high occupancy rates. They also do not appear to be discounting rates. Class A rates are about $22 per square foot to $23 per square foot and holding.
The hottest submarkets in office continue to be Uptown and North I-25. However, in the Rio Rancho submarket, a large win for the entire State of New Mexico was the announcement that Safelite AutoGlass would open a call center. Safelite AutoGlass leased a 94,000-square-foot building that formerly housed a Sprint call center at 4300 Sprint Blvd. The new call center will bring 900 jobs to Rio Rancho. Healthcare-related offices and call centers will most likely continue to drive demand in the office market.
As functional obsolescence has continued to stress properties, we have seen more and more redevelopment plays in the Albuquerque office market. The upper most floor of 2424 Louisiana Blvd., a 70,000-square-foot office building, is being converted to residential condominiums. This building is the first of its kind in the Albuquerque market, though there are other mixed-use projects in the works in Downtown Albuquerque.
Aside from modern finishes, many occupiers are looking to purchase buildings to increase both space and financial efficiencies. Given the continued stable and, in some cases, depressed prices per square foot, low interest rates and favorable terms are being offered from various lending institutions and the options for purchasing are positive. The supply of newer office product is yielding more rehabilitation and/or conversion projects. Stabilized office portfolios with credit-worthy tenants are in demand amongst investors.
— By Keith Bandoni, Senior Vice President and Principal, Colliers International. This article first appeared in the May 2017 issue of Western Real Estate Business magazine.