By Billy Eagle and Erik Olson, Senior Vice Presidents of Investment Properties, Multifamily, CBRE
In Albuquerque, New Mexico’s largest city, multifamily demand remains high. Rents have steadily increased, though multifamily development remains sluggish due to the lack of developable land sites and geographic constraints. Most other New Mexico cities are also seeing a small pipeline of new multifamily projects due to increased material costs. However, contrary to other cities in New Mexico, the northern New Mexico City of Santa Fe has seen a boom in multifamily development.
Santa Fe’s highly resilient and fundamentally sound multifamily market is highlighted throughout the pandemic. The state capitol is renowned for its Southwest culture, luxurious resorts and world-class art markets. Its economic drivers include, but are not limited to, tourism (more than 1 million visitors per year), government (Los Alamos National Labs is located nearby), medical and boutique financial services.
The Santa Fe apartment market had record occupancies at 96.91 percent in January 2021 and year-over-year rent growth of 7.6 percent. The average weighted rent was $1,102 per month among a total of 3,385 market-rate units. Nearly 16 months later, they are averaging almost $1,300 per month, an 18 percent increase.
Santa Fe also added 503 market-rate units to the supply since January 2020. This represents a record 15.7 percent increase to the existing overall Santa Fe market-rate apartment supply. Northland Investment Corporation delivered Altitude at Vizcaya, a 60-unit addition to their Vizcaya holdings. Locally based Titan Development teamed up with Alliance Residential to deliver a 188-unit, Class A project called Broadstone Rodeo. Cruachan Capital Partners pulled permits and began construction in 2019 on Camino Real, a 120-unit, Class A property. Units began delivering in mid-2020. Aberg Property Company constructed the 139-unit Capitol Flats last year, and the property is already fully leased-up after receiving final certificates of occupancy in the first quarter of 2021.
Santa Fe occupancies did decline during COVID-19, but the rate of decline shows robust market strength and continued demand. Despite the addition of 15.7 percent more units to the market-rate supply, occupancy only declined 3.7 percent, logging record absorption and indicating a likely continuation of demand outpacing supply through the remainder of 2021.
Santa Fe shows no signs of slowing its development trend. CBRE is tracking at least seven more market-rate apartment projects either in the permit process or under construction. Almost 1,700 additional market-rate units have the potential for delivery between the fourth quarter of 2021 and the fourth quarter of 2023. This represents an unprecedented 44 percent increase in market-rate supply.
Although Santa Fe’s market-rate apartment supply is increasing dramatically, the high demand will likely remain unsatisfied by the properties under construction. With more high-end properties being delivered in the coming years, rent is still projected to continue growing at a healthy pace.