Albuquerque market sizzling

New Mexico Business Journal, June, 1994 by Arlene Cinelli Odenwald

Albuquerque's commercial real estate market is so hot it's sizzling.

But the good news is also bad news.

"I get calls from out-of-state brokers looking for a 6,000-square-foot space for their clients to rent, and I have to tell 'em I don't have anything," laments Terry Seals, leasing specialist with BGK Asset Management Corporation and vice president of Leasing Information Network.

"Two years ago, I would give 'em three or four names and the broker would negotiate with the landlord," says Seals. "Not today . . . Not anymore. Albuquerque is so hot it's beginning to look like Santa Fe."

Only three years ago, landlords were falling all over themselves trying to rent their buildings.

They were giving away space with all sorts of concessions in what was a tenants' market.

The landlords are in the driver's seat today, setting their own terms and standards, picking and choosing.

And the cost for rental and leasing space in general has gone up.

In the last three years, Albuquerque's market has done a 180-degree turnaround, according to Karen Adams, an associate broker with Lewinger Hamilton and member of the nationally certified commercial investment group affiliated with the National Board of Realtors.

The overall office vacancy rate in Albuquerque, for instance, is about 13 percent, the lowest it's been in a decade.

And whatever is happening in Albuquerque is a good gauge of what is happening in the state's smaller cities.

There's not a whole lot of prime commercial space available in Santa Fe, for instance, which has a current vacancy rate of 3.96 percent; there's not a whole lot available either in Roswell, Hobbs, Las Cruces, Farmington, Los Alamos or points between.

Albuquerque Mayor Marty Chavez meanwhile promotes the Duke City as having a great opportunity to come up with more warehousing space to take advantage of the North American Free Trade Agreement with Mexico.

But speculative building in the Duke City is more myth than money.

Albuquerque's 13 percent office vacancy rate compares favorably to Denver at 18.1 percent; Phoenix, 19.5 percent; Salt Lake City, 13.5 percent; and Tucson, 20.7 percent.

The flood of telephone calls from clients looking for space is incredible, according to both Seals and Adams; the retail market is following the commercial office market sector.

The high demand is pressuring the supply end of the economic equation, but the demand for space is generating only build-to-suit, not speculation.

Financing for build-to-suit orders is also easier to get although landlords usually have to get 7- to 10-year leases from tenants before banks will fork over the money for construction of a new building, says Adams.

There may be a spec building going up here and there in New Mexico, but in terms of numbers, nothing of any real significance.

"As far as I know, there's no speculative office space being built or planned right now," notes Adams.

Though the early 1980s experienced strong economic growth, builders back then were not necessarily supplying a real market demand, but instead were doing a lot of speculative building to take advantage of a tax incentive that was eventually deleted with the Tax Reform Act of 1986.

The picture is entirely different today with the market much stronger and the drive to build not driven by artificially imposed incentives.

Still, there are problems.

The vacancy rate for general warehousing is a very low 5 percent, a fact interfering with Albuquerque's attempt to attract out-of-state companies.

Adams says there are about 32 million total industrial square feet in Albuquerque for warehousing, including warehousing for research and development, storage and manufacturing, but virtually all of it is spoken for.

Unlike Phoenix, Albuquerque didn't overbuild in the industrial sector in the early '80s. The industrial glut that hurt cities like Phoenix in the mid-80s is now working in their favor.

Part of it is that out-of-state companies looking at New Mexico would rather move into empty buildings than commit themselves to finance new construction over eight to 10 years.

"I helped one out-of-state company, for instance, look for warehouse space here with no luck," says Adams.

"Finally, the company said it still had to look at Nevada, Arizona, Colorado and a few other states," she says, adding, however, she has a strong feeling that the company will come back with a build-to-suit order.

In the warehousing category, Motorola's plans and Intel's $1.5 billion expansion are driving the market sector, says Adams.

Reconfiguration of corporate giant Martin Marietta and the departure of a Siemens operation from Albuquerque may, however, have helped.

In those changes, the two firms left 600,000 square feet behind on the industrial market in Albuquerque -- bad for employees, but good in the long term for the Duke City which badly needs industrial square footage.

The empty buildings will probably wind up being subleased, according to industrial planners.

There's only one way to describe the I-25/Jefferson Corridor in the Duke City right now, and that is scarce and prime properties with Intel's expansion driving growth.