Building boom

New Mexico Business Journal, Sept, 2000 by Joy Dickinson

Industrial and retail markets are growing, but the office sector remains soft, with some encouraging signs.

Everywhere you look in Albuquerque, dirt is flying. And it's not just around the Big I construction -- new commercial buildings, especially of the industrial variety, seem to be springing up on every available corner.

To the casual observer, all this construction -- combined with a strong U.S. economy, which grew at 5.3 percent in this year's second quarter - would seem to spell prospects rosier than the Sandias at sunset for New Mexico commercial real estate.

Well... yes and no, say industry experts.

The industrial, retail and apartment markets have gained strength in Albuquerque and statewide in the last year or so, say brokers, bankers and other real estate professionals. The office market, however, remains soft due to an excess of available space.

Overall, industry professionals say, New Mexico has always more closely resembled the tortoise than the hare in the commercial real estate race: a market with slow, steady growth. "It's not the boom and bust you see other places," says Bruce Marvick, president of Building Interests Inc. in Albuquerque. "But we've always had steady growth, and things seem to be on an upward swing."

Albuquerque remains one of the least expensive places in the country to rent office, industrial or retail space, says Steve Monroe, a broker and office manager with CB Richard Ellis, which tracks commercial rental rates nationwide.

Lease rates for commercial space in Albuquerque averaged $15.33 per square foot during the second quarter of 2000, Monroe says. That's second-lowest in the country, with only El Paso, whose lease rates averaged $15.30 per square foot, ranking lower.

Other cities with low lease rates include Tulsa ($15.75 per square foot), Oklahoma City ($16.70) and Greenville, S.C. ($17.40)

The nation's highest rates are in San Francisco's central business district ($64.70 per square foot), midtown New York City ($58.50) and San Jose/Silicon Valley ($57).

"The fact that Albuquerque is so affordable is something we really try to push, and it's something we should be making companies that might want to move here more aware of," Monroe says.

Overall vacancy rates for Albuquerque, which are tracked and published by Marvick's company as part of its Commercial Real Estate Index, are about 15 percent for office space, with about 11 million square feet total in the Albuquerque market; 5 to 6 percent for industrial space, with about 34 million square feet total; and 10 percent for retail, with about 18 million square feet in the market.

Industrial properties -- particularly warehouses and manufacturing facilities -- are having a particularly strong year in Albuquerque, Monroe says, and virtually all speculative construction is in that area. "We're seeing two really hot areas -- the north Interstate 25 corridor, both east and west of I-25 from Comanche north to the Sandia Reservation, and west Interstate 40, mostly the south side west of Coors Boulevard," Monroe says.

Marvick, whose company does industrial/office property management and leasing, agrees. "We're currently 96 percent occupied," he says, "and a lot of our companies are talking about expansion."

Many of Marvick's clients are near the airport and Kirtland Air Force Base, doing government contract work. "In addition to the companies that we've had for years, we've also had a number of small leases lately, for companies outside the area who need a small place to start out while they establish working relationships in Albuquerque.

"We fully expect that within a year or two, those companies will be needing more space," he says. For example, one company he talked with recently "just needs 1,000 square feet for the first six months. But then they'll be wanting something with 3,000 to 4,000 square feet."

One major caveat to that good news, however: With a relatively small amount of new companies coming to the area, when those who do move up to bigger space, they leave those smaller spaces unoccupied.

Older, established companies also have been building bigger, spiffier spaces, particularly Albuquerque's west side and along the Interstate 25 north corridor. But that movement, too, often leaves older buildings empty.

"We're concerned that an awful lot of the movement we're seeing is shuffling people to a new building, rather than new absorption," Marvick says.

Jim Chynoweth of the Vic Bruno Co., an Albuquerque commercial brokerage, concurs. "The trend is for newer buildings to be built in industrial, and the caliber of the buildings is improving," says Chynoweth. "But most of that improvement is at the expense of those older buildings, which remain vacant."

The one commercial area that seems strong statewide is retail, professionals in that area say.

"This is a great market from our perspective," says Craig Young, senior vice president for Greer Enterprises in Santa Fe, which manages and owns properties in Albuquerque, Santa Fe and Las Cruces.

A shopping center the company manages in Las Cruces, Young says, "is the fullest it's ever been. We only have one vacancy, about 4,000 square feet, out of a total of 90,000 square feet. And we're looking at adding another 60,000 to 70,000 square feet to that center" which is on University Boulevard across from New Mexico State University.