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New Mexico is Primed for Industrial Development

Facebook-Data-Center-Los-Lunas-New-Mexico

Development of Facebook's new data center in nearby Los Lunas has precipitated a sharp spike in multifamily housing in Albuquerque.

By Riley McKee, Advisor, NAI Maestas & Ward

If summarized in one word, New Mexico’s industrial real estate market can best be described as undersupplied. Steady increases in demand, combined with a dearth of new construction, have resulted in record-low vacancy rates in Albuquerque, Las Cruces and Santa Fe – the state’s primary metropolitan areas.

A string of noteworthy projects are underway in Albuquerque. Food products supplier Ben E. Keith Foods is building a 260,000-square-foot regional headquarters and distribution center to service markets throughout the region. FedEx Freight recently opened a 95,000-square-foot distribution center strategically positioned on a 50-acre site to expedite planned expansions. Brunacini Development, the city’s largest industrial landlord, just completed a 140,000-square-foot multi-tenant distribution center anchored by Bunzl, a London-based food packaging distributor. Finally, and perhaps most notably, nuclear energy firm Kairos Power acquired an 110,000-square-foot research and development facility after a nationwide site selection process. It plans to expand the facility, which sits on 35 acres, as part of an incentive package with the state.

Las Cruces is seeing strong development activity as well, specifically in Santa Teresa, an international Port of Entry that sits 21 miles south of the city. W. Silver Recycling, which processes nonferrous metals, recently announced plans for a 120,000-square-foot facility, touting the advantage of being located near markets in Mexico. Electrical wiring manufacturer Admiral Cable is expected to complete a 195,000-square-foot facility this year on a site that is well suited for intermodal transport. A few miles south in Sunland Park, Stampede Meat is in the process of renovating and expanding a processing facility previously owned by Tyson Foods.

This activity is certainly welcome, but it represents a drop in the bucket when compared to statewide demand for development of industrial space. Albuquerque’s vacancy rate is currently at a historic low, hovering between 2.5 percent and 3 percent since 2018. Most remaining available space is functionally obsolete, which some nimble developers have astutely retrofitted for users with urgent needs. Santa Fe’s market is even tighter, with only 40,000 square feet of available space (as of this writing).

While primary markets throughout the United States have enjoyed a consistent influx of new construction, New Mexico’s industrial real estate portfolio has not kept pace. This is partially a consequence of the state’s tertiary market nature, but it’s also explained by its position relative to other states during economic cycles. Impacts of the last recession were not felt locally until several years after the fact, while evidence of recovery has only recently become apparent. This presents a compelling opportunity for investors and developers who are active in markets during their peaks. New Mexico’s growth trajectory is only beginning.

Though COVID-19 has blindsided markets worldwide, industrial real estate users are expected to escape its most devastating impacts, unlike their retail and office counterparts. Demand for robust and efficient supply chains is as strong as ever.

— This article originally appeared in the May 2020 issue of Western Real Estate Business.

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