Albuquerque Industrial Update: Still Trying to Gain Some Real Traction?

Sunday, June 12th, 2016 at 9:53am.

View of 4th street in Albuquerque, NM; Source: GettyImages

By Jim Smith, CBRE Centre
Originally published in ABQ Journal's HomeStyle

The Albuquerque industrial market ended 2015 on a high note.  Both gross activity and net absorption were up, with net positive absorption (873,544 square feet) being the highest since 2007. The actual numbers of lease transactions tracked was a bit below 2014, but the median transaction size was the highest since 2007. 2015 ended with 6.5 percent vacancy rate. The average asking rate for all industrial space was $6.93 PSF NNN on an annual basis.

Albuquerque has not yet seen many of new entrants into the market, despite the State Legislature increasing closing fund budgets and lowering corporate tax rates. However, it does appear that these changes are increasing the pipeline of prospects and better results are expected in 2016 and beyond.
2016 began with good activity, but slowed in March with 7,575 square feet of negative net absorption for Q1 2016. Most of the activity in the first quarter was smaller office warehouse transactions and the median lease transaction size was small, the smallest since Q4 ’14.

The Albuquerque job market is growing modestly.  At the end of February year-over-year private-sector employment grew by 1,400 jobs, or 0.5 percent, however most of this growth was in the health care and education sectors. The manufacturing sector contracted by 400 jobs, or 2.4 percent.  Employment in the construction sector was up 2.8 percent.  Overall, the sectors of the economy usually occupy industrial space –including mining, logging & construction, manufacturing, wholesale trade, transportation, warehousing & utilities --lost 400 jobs year-over-year as of the end of February.  The goods producing sector has seen zero year-over-year job growth through February 2016.

Larger transactions over the past 12-15 months have included:

  • Food manufacturing – Flagship Food, Rio Grande Tortilla
  • High Density Polyethylene Pipe manufacturing – United Poly Systems
  • Electronics manufacturing – Delta Group Electronics
  • Ecommerce – FedEx, UPS

There has been very little speculative construction in the Albuquerque market since 2008. This has put downward pressure on vacancy rates and limited availability.  However because demand has been sluggish, the spread between current asking rates and the rates needed to justify new construction has been tough to overcome. Currently all industrial projects under construction are owner-user projects.

Another bright spot over the last two years has been owner-user sales activity.  Owner-user buyers and build-to-suit transactions have been from a wide range of industries.  Currently an industrial distributor has a 42,510 square foot office/warehouse building in the North I-25 Submarket under construction and an electrical wholesaler has a 15,625 square foot office/warehouse building in the West Mesa Submarket under construction.