Leasing activity in the Albuquerque industrial market has been inconsistent during the first half of 2010. The market cannot seem to sustain any positive momentum, with many starts and stops so far this year.
As is the case in many other markets, there has been virtually no speculative construction in the Albuquerque industrial market in the past 2 years; positively, this trend has helped keep vacancy rates from rising even more than they have. The industrial market vacancy rate for Albuquerque is currently 9.4 percent, which is 1 percent higher than a year ago and more than 2 percent higher than 2 years ago.
Albuquerque’s north Interstate-25 corridor continues to lead all submarkets with regard to overall leasing activity, capturing a full 85 percent of all leased space in the second quarter of this year. A significant transaction just completed in the submarket is the Southwest Regional Council of Carpenters’ 93,686-square-foot union training center at 3900 Pan American NE. Slower submarkets include the downtown area (13.3 percent vacancy) and the South Valley (15.4 percent), both of which have older inventory including buildings with functional obsolescence.
The overall lack of demand for Albuquerque industrial space can be attributed in large part to weak construction employment. The lack of jobs in sectors typically using industrial space, such as construction, manufacturing and warehousing, have sunk employment numbers to levels not seen in almost 20 years. Until improvements in the labor situation among users of industrial space take place, demand for warehouse space will remain soft.
For example, asking lease rates for warehouse space in Albuquerque have dropped almost 20 percent in the past 2 years to the current level of $5.60 per square foot.
The second half of 2010 should see tenants focusing on opportunities to negotiate favorable lease rates and terms for their current space or move to better quality properties with motivated landlords. At the same time, landlords in the market will focus on retaining tenants and reducing operating costs for the balance of 2010.
Owner-users are in a position to take advantage of reduced pricing for existing industrial buildings, an area further enhanced by the availability of attractive financing options for owner-occupied buildings.
Investment property sales have been few and far between, as many sellers have elected to wait it out before putting their property on the market while buyers at the same time are looking for higher cap rates and stable long-term leases in order to take the investment plunge.
— Rich Diller is director of investment, land and industrial brokerage for Maestas & Ward Commercial Real Estate in Albuquerque.