Hints of positive signs - commercial developments in Albuquerque Metro - Real Estate Quarterly

Albuquerque metro's residential and commercial real estate markets are showing signs of growth with even a hint that industrial properties may be showing minute indications of a healthy future.

There has been a severe lack of industrial space in the Albuquerque metro area for the past four or more years and industry leaders hope lending institutions will ease up with loans.

The key is whether the institutions start circulating funds needed for substantial industrial growth -- and right now there's no telling when that will happen.

"Right now we're suffering from a lack of enough available space in all sizes," says David Roche, associate industrial specialist with CB Commercial Real Estate Group Inc.

"This can have a negative effect if companies moving in can't find the space," he says, "but overall, we're looking at the healthiest market we've had in several years."

With about 29.5 million square feet, the industrial vacancy rate is about five percent. Last year the vacancy rate was about 4.6 percent, says Roche.

"Last year, we saw a real uptake in activity overall in the net absorption, and it should continue over the next several years," Roche says. "With some of the large expansions, we'll see more growth. We're not out of space."

But those in search of industrial space can't be too choosy, either.

The growth that has been evident in industrial building has come mostly from existing, healthy companies expanding.

Companies like Intel and Amtech account for some of the growth.

"The Intel expansion will have a ripple effect, and Motorola will be doubling its plant. Most of the activity has been in enlargements and expansions of existing facilities," Roche says.

David Scott, executive vice president of Albuquerque Economic Development, says lease space for industrial use is hard to come by and developing industrial land is difficult under the cautious market.

Economic leaders in the Albuquerque area have identified the lack of space as a very real problem.

"Albuquerque Economic Development has a piece of land we've been trying to build a speculative building on as a means to help attract some industry here," says Scott.

"I can't make the statement and back it up that we've lost companies because of a lack of buildings," he says, "but when many people ask how many buildings we do have, we no longer hear from them.

"I think part of the reason we've lost some is because we don't have the space."

Roche, however, says that in the last 12 to 15 months, the metro area has seen an increase in build-to-suit activity, something that should continue as long as the market stays competitive.

In the first quarter of 1993, 719 building permits for single family homes were issued in the metro area with low interest rates and the rising demand pushing the market ahead, according to data from the Home Builders Association of Central New Mexico.

Sales of existing homes also jumped about 17.8 percent in June compared to the same period last year, and the future looks bright for both new construction and sales of existing homes.

"Overall it's going extremely well," says Jim Folkman, executive officer of the Home Builders Association of Central New Mexico.

About 46 new homes will take a large chunk of property on Indian School and Washington, and building is starting up on Cutler Street on the same piece of land.

"Low interest rates continue to stimulate the market," says Folkman. "It broadens the market and Albuquerque continues to grow because of the evenly divided activity of the public and private sectors."

The breakdown for single-family permits issued during the first quarter of 1993 includes Rio Rancho, 203 (41 percent of market share; Bernalillo, 118 (13.5 percent of market share); Albuquerque, TABULAR DATA OMITTED 398 (-7.7 percent of market share; total metro, 719 (5.9 percent of market share).

It almost seems growth in Rio Rancho is unlimited.

"We're doing anywhere from 60 to 70 houses per month, and we're running behind," says Richard Williams, director of communications at AMREP Southwest Inc.

"We're selling so many, but the problem with building the houses is we can't find enough bodies to build them," says Williams. "I think it's a problem with other builders as well. We're cursed by our blessing, but we like it that way rather than the other way."

AMREP is selling homes mostly in River's Edge III north on State Highway 528. It's the third segment of a three-phase project that will eventually hold about 1,800 homes. The company is also building at North Hills at the end of 20th street in Rio Rancho.

"This past year and a half, we've been doing in-fill buildings on smaller plots of land, too," says Williams. "It's looking like it's going to be this way indefinitely, especially with this Intel expansion and other businesses moving in. The new jobs really help our home sales."

Apartments are at about a 98 percent or more occupancy rate in the Albuquerque area, but no major apartment complex plans are under construction yet.

In the commercial markets, both in office and retail, industry players are experiencing solid growth and it is expected to continue.

"It's kind of fun coming back to work these days, and it wasn't fun for a long time," says Jim Peterson of Peterson Properties Inc., a shopping center developer and retail real estate company.

For about seven years, the market in Metropolitan Albuquerque was depressed, in both an anecdotal and literal way.

Failed speculative building ventures of the past have forced everyone in the business to be more cautious and concentrate on restoring the values of existing projects. It appears, however, that more are now willing to buy property.

"I've been out here for 20 years," says Peterson. "We had an absolute depression as far as I'm concerned, but it's coming back.

"The benefits of owning property are coming back. It's like a blood spill," he says. "If eight quarts of blood go out, it takes time go regain your full health. It's like recovering from the flu.

"You're weakened, but it's starting to get better.

"As soon as the after-effects of the six- to seven-year depression are in the past, it would be nice to have it gone. One thing that won't happen is we won't ever forget."

The Albuquerque active retail market totals over 14.5 million square feet in 227 centers.

According to the retail market analysis for the first quarter by CBS Property Services Inc./Oncor International, the vacancy rate at the end of that quarter was 11.12 percent with an average asking rate of $17.19 per square foot, including regional malls.

CBS divides the area into nine submarkets: Downtown, Uptown, Northeast Heights, Far Northeast Heights, Southeast Heights/Airport, North Valley/I-25 Corridor, Rio Rancho, West Mesa and South Valley.

Northeast Heights is the largest submarket with just over 4.7 million square feet in 93 cents and a vacancy rate of 9.32 percent. Average asking rents are $8.96 per square foot.

Uptown has the lowest vacancy with 2.32 percent in 26 centers and two regional malls. The malls account for the low vacancy rate.

Submarkets with a negative net absorption were: Far Northeast Heights with 21,953 square feet; West Mesa with 4,434; and Rio Rancho with 300.

The negative absorption in the Far Northeast Heights is due to 67,767 in square foot sublease space that is no longer available through sublease, but through the landlord.

The retail market has shifted to one-stop type shopping centers and discount stores like Wal-Mart and Target, leaving behind the smaller stores that can't compete. Neighborhood centers have sprung up throughout the metro area.

Albuquerque's population growth beyond a half-million has also attracted large national chains like Home Depot, TGI Fridays, Popeye's and Olive Garden.

As for major construction projects, the Sycamore Plaza in the Far Northeast Heights at the southwest corner of Wyoming and Academy has a total planned square footage of 270,000 square feet. The anchor stores are Wal-Mart and Smiths.

There are six planned projects in five submarkets covering over 1.9 million square feet as well, according to CBS. Some of the centers already have prospective anchors, bringing the vacancy rate to 75.93 percent.

"When you start getting to that critical size, then all of a sudden the town is attractive to a wider range of national chains," says Thomas Love, associate broker with CBS.

"As all of these things start coming in and as we start talking about arts centers and we start getting more of these national amenities, as we start extending our infrastructure, the town really becomes more appealing," he says.

Development in the metro area has always moved at a snail's pace, but it has always seemed to grow.

Brokers know that if they can get a client to look at Albuquerque, they can most likely get the client to buy although the large number of independently owned tracts and awkward borders make development difficult.

Existing company expansion, high tech opportunities and low labor costs are some of the driving forces behind the migration to Albuquerque.

"I think a lot of the benefits that Albuquerque is starting to see results from our marketing," says CBS associate broker John Ransom. "People are moving here for the quality of life."

Brokers are feeling a market that in a few years could boom with growth as companies are purchasing with long-term, well-planned goals in mind.

As for office space, according to CBS, the Albuquerque office inventory totals over 9.9 million square feet in 220 buildings tracked.

Vacancy reported in the first quarter of 1993 was 15.81 percent with an average rental rate of $12.83 per square foot. The overall asking rental rates are a full service rate.

No speculative building is taking place and the market continues to be user-driven.

CBS divided the office inventory into six markets: Downtown, Midtown, Uptown, Northeast Heights, Southeast Heights/Airport, Jefferson Corridor, West Mesa/Rio Rancho.

Absorption during the first quarter totaled 65,211 square feet.

Uptown reported the highest net absorption with 45,898 square feet with West Mesa/Rio Rancho second with 15,084 absorbed.

Southeast/Airport reported a negative 10,084 square feet, largely attributable to a landlord handling some 20,000 square feet of former sublease space.

The Downtown market reported a negative 6,473.

"We're going through the turmoil of growing from a half a million to a million people, and getting to that million is painful," says Joe Mullen, a CBS associate broker.

But brokers seem confident that the upward trend will continue.

Bruce Marvick, president of Building Interests Inc., says his share of the market is doing amazingly well. The group manages office and warehouse space in the airport area.

"We're managing 13 buildings out here and we're at 98 percent occupancy," he says.

"The market has been hanging around 85 percent. The occupancy will increase as it's doing, and there isn't any new space coming on the market.

"We'll see some new space coming on, but not for a couple of years," says Marvick.

Williams says AMREP is planning a few sites near Intel for commercial development and is courting companies to add to the New Mexico Business Tech Center at River's Edge and other commercial/light industrial centers.

"You have to take into account people are very nervous about the economy and companies are being hesitant," says Williams.

"Everyone is just a little bit gun-shy."

E. David Grenham is a Belen newsman and a free lance writer.

COPYRIGHT 1993 The New Mexico Business Journal
COPYRIGHT 2004 Gale Group