The big building boom is about ready to happen

New Mexico Business Journal, Jan, 1996 by Arlene Odenwald

The tight commercial market in Albuquerque has finally created a wave of commercial construction that's expected to continue into 1996. How long it will last, however, depends on who you talk to, with some crystal ball estimates ranging from two to five years at the outside and with others to the end of the decade.

Not only Albuquerque, but Las Cruces, Santa Fe and even Taos have good news to report regarding commercial construction.

The commercial market in Las Cruces is so tight it's a joke to even talk about it, says Mary Winfield, a commercial broker with Mary Winfield Business Brokers. There's some stuff in the works, but no one is building yet, she said.

Meanwhile in Santa re, residential construction may be down as it is in Albuquerque, but the commercial market has fired back up. This year (1995) has been a real "barn burner," says Chrys Jaschke, president of Cameron Construction in Santa Fe. Even Taos, says Jaschke, is on the verge of booming. "We contracted a large chunk of work - about three $1 million projects - just this year."

In Albuquerque, Bob Turner, executive vice president of marketing for Bradbury & Stature, says 1995 was one of the best years in the 72-year history of the company. Bradbury & Stamm just finished One Technology Center for Lockheed Martin at the University of New Mexico's Science and Technology Park. The company is currently building a 60,000 square foot building for Suburban Land Corp./Ashcraft Development at Journal Center. And they just started another building at Journal Center for the State Bar of New Mexico - expected completion date mid-1996.

Jaynes Corp. is riding the same wave of contracting activity - a wave, however, that Norman Gabel, vice president of marketing and development, expects will ebb by late this year (1996). If commercial building does level off, Gabel says, it won't be until the third or fourth quarter of 1996. Even so, he adds, any downturn, even if it is substantial, will not be that bad. "We're coming down from a year (1995) when commercial contracting reached its peak."

Jobs drive economic growth, and according to the Bureau of Business and Economic Research, Albuquerque's looking at 2.7 percent job growth in 1996. In 1994 and 1995 jobs were growing at about 4.7 percent. In 1990-91 there were 51,000 jobs; in 1994, 42,000. Gabel expects jobs to cut back to between 32,000 and 28,000 in 1996. But even that is a healthy number, and across the state construction jobs lead all other employment sectors.

You can't complain about a 2.7 percent job growth, Gabel added.

Space Costs Are Increasing

Commercial construction activity follows residential as night follows day, as anyone in the real estate market can attest. Residential construction peaked in 1994; commercial building had to be right around the corner. "We've seen the price of space increase 20 to 30 percent along the Rio Grande Corridor over the last year, year and a half," said Gabel.

"We're definitely seeing a return of office building construction in Albuquerque," says Bradbury's Turner. Unlike Gabel, he expects the market to strengthen in 1990, especially if interest rates continue to go down. If so, he foresees speculative building intruding into a predominantly build-to-suit market. "We'll see office buildings built where part, or a great proportion of the space, will be spec space."

Walt Arnold, president of Wait Arnold Commercial Brokerage, Inc., disagrees. Some spec building is not out of the question, Arnold said, but it will occur with some substantial pre-leasing - at least 60 to 65 percent. Whatever the situation, any spec building in this market will be worlds away from the kind of spec building that occurred in the early to mid '80s. Spec building then was easy, supported as it was by Uncle Sam's generous tax incentives and some loose S&L lending practices. But the Tax Reform Act of 1986 took the wind out of that sail, and banks today are more conservative.

It made for a real tough period, said Rich Diller, commercial division manager with Vaughan Co., but now pure supply and demand is driving this economy. "I know of two buildings recently built on spec that were leased before they were finished."

The question one should ask, says Arnold, is how long this commercial construction activity will last. That's the $64,000 question, Gabel said. Arnold doesn't see it lasting much over two or three years at the outside. Diller, on the other hand, sees it lasting through the decade. Diller believes that even with all the commercial construction going on right now, there's still not enough space on the market to meet demand.

Dennis Roberts, director of Labor, Public Relations and Safety for the New Mexico Building Branch of Associated General Contractors, says describing the current building spurt as a window is the wrong way of looking at it. "My personal opinion is that Albuquerque has reached a stage where it more or less feeds on itself, like Atlanta or Denver, for instance," he said.

"We now have a more diversified economy. We don't depend on defense as much as we used to. Plus, we're drawing in more groups for conventions, and tourism is strong. We're becoming a regional hub for business type activity."