By Alex Pulliam, Land & Industrial Advisor, NAI SunVista
It’s been a long time coming.
Albuquerque hasn’t built speculative distribution warehouses in nearly two decades. However, the recent strength of the market is giving developers confidence to break ground – and investors are paying attention.
Industrial activity has been lively, thanks to accelerated macro trends from the pandemic, as well as the legalization of recreational cannabis. Albuquerque’s industrial vacancy rates have remained below 1 percent for over two quarters. Prior to that, vacancy rates hovered around a then “historic low” in the 2 percent range since September 2019. The demand from users has continued to climb and tenants are facing lease rate increases.
While needing more speculative warehouses should be a matter of basic economics, it is not always easy to build in a tertiary market that lacks the memory of growth. Historically, Albuquerque would only secure a few 50,000-square-foot users per year, along with the occasional 100,000-plus-square-foot user. This deterred developers from taking a chance on new construction. But times are changing. Large tenants are taking note of Albuquerque’s access, affordability and workforce, while existing users are seeking modern buildings for efficiency and growth.
These factors, combined with rental rate growth and a decrease in available space, have developers working to provide some relief in the form of new construction. Across the Albuquerque MSA there is currently more than 230,000 square feet of new speculative construction in progress, with an additional 360,000 square feet planned. This doesn’t include owner/user or build-to-suit construction. These projects will eventually translate into breathing room for tenants, but it will take time for the market to catch up.
NAI SunVista’s industrial brokerage team represents two speculative industrial projects, including Titan Development’s Westpointe 40 Industrial Speculative building, a 150,000-square-foot distribution warehouse set to break ground in May 2022. Titan Development has been successful in developing speculative industrial projects in several Texas markets and is energizing its initiatives in Albuquerque.
When asked why this is the right time to build speculative industrial in New Mexico, Brian Patterson, senior vice president of Titan Development, said, “When we started to see the uptick in lease rates in 2019 and 2020, we were able to better prove our underwriting and move forward with a spec program.”
Titan isn’t just looking at this project as a one-off; it has plans for a long-term business park in the heart of Albuquerque’s West I-40 distribution hub as a result of this demand.
Speculative construction isn’t only desired by users. There is growing fanaticism in the investment world as capital aggressively chases industrial assets.
“We have seen a strong response from institutional buyers interested in industrial development and investment opportunities in New Mexico,” Patterson continued. “Many institutional groups are chasing higher yield and less competition as compared to markets such as Phoenix, Denver, Dallas Fort Worth, the Inland Empire, etcetera.”
Tertiary markets with healthy market indicators are gaining momentum, and Albuquerque is one of them. With Amazon, Facebook, Netflix and other distributors investing in Albuquerque’s community, it’s setting the stage for more industrial growth and, at last, new speculative construction.