Albuquerque’s industrial real-estate market ended 2012 the same way it ended both 2010 and 2011, with a vacancy rate stuck at 10.3 percent.
Consumers can feel the high industrial vacancy rate when they have to wait for days to have parts shipped from out of state to fix a household appliance or repair something else, said Tim MacEachen of Grubb & Ellis New Mexico. The parts aren’t available in Albuquerque.
“It’s regional distribution these days. It’s cheaper to warehouse at one central location and ship it when it’s needed,” he said. “Depending on what you’re getting, it usually comes out of Denver, Dallas or Phoenix.”
The fourth quarter’s 10.3 percent vacancy rate was an increase from 10 percent in the third quarter, according to the latest Grubb & Ellis’ Industrial Trends Report. The main contributor to the increase was Fidelitone Logistics vacating a 133,800-square-foot warehouse near Old Town as part of a downsizing.
“Backing that out, it was basically a flat quarter,” said Ken Schaefer, director of brokerage services at Grubb & Ellis.
The average vacancy rate nationwide, which has been gradually declining since its most recent high of 10.6 percent in early 2010, was 8.3 percent in the fourth quarter.
Albuquerque’s industrial vacancy rate has bounced up and down since first passing the 10 percent threshold in the third quarter of 2010. The year-end rate of 10.3 percent each of the past three years is coincidental, although still indicative of a stagnant market.
“The 1987-92 downturn was bad. This is the worst I’ve seen it in Albuquerque,” said Mike Leach of Sycamore Associates, a 35-year veteran of commercial real estate.
The 1987-92 downturn, which culminated with the 1990-91 recession, was characterized by fire sales of distressed commercial properties. During that period, the high point for Albuquerque’s industrial vacancy rate was 10.8 percent in 1988, according to CB Commercial Group, now CBRE.
By the end of 1994, the rate had dropped to 4.3 percent, CB Commercial reported. If a handful of large, empty industrial buildings were taken out of the vacancy rate calculation, the rate would’ve dropped to 2 percent.
The six-year time lapse between the high of 10.8 percent and low of 4.3 percent likely stemmed from a dramatic improvement in the local economy, brokers contacted by the Journal agreed.
Construction of Intel’s $1.8 billion, 98,000-square-foot Fab 11 in Rio Rancho likely contributed to 26 percent jump in construction employment from 15,900 in March 1993 to 20,100 in March 1994. In addition, residential construction in the metro doubled from 2,344 homes in 1991 to 4,740 in 1994.
The six-year turnaround seems relatively brief by today’s economic standards.
“By my calculation, we’re six-and-a-half years into this (residential construction downturn),” said Jim Smith of CBRE, citing the sharp drop in building permits issued for new homes in mid-2006. “We’re still bouncing along the bottom.”
Homebuilding typically accounts for 20 percent of warehouse occupancy in an industrial market, according to Cassidy Turley Commercial Real Estate Services.
The construction downturn didn’t show up in the industrial real-estate market in a significant way until 2009, when the vacancy rate shot up from 7.5 percent at the end of 2008 to 10.3 percent a year later. More than 1 million square feet of industrial space went dark, according to Grubb & Ellis data.
Surprisingly, the highest industrial vacancy rate registered in Albuquerque was 11.2 percent in mid-2005, when the housing market was setting records and annual job growth was 2.1 percent. The high rate was attributed to overbuilding and the former 502,000-square-foot Philips Semiconductors plant, closed in 2003, finally coming on the market.
Overbuilding generally means construction of so-called “spec” — short for speculative — buildings, which are not pre-leased. In other words, they are built on speculation that they can be leased and occupied by the time they’re finished.
Spec building projects slowed dramatically in 2006 and, since then, have all but disappeared from Albuquerque’s industrial market. The industrial vacancy rate dropped below 6 percent in 2007 because of the lack of new product.
The Great Recession began to affect the local economy in 2008, although the opening of Schott Solar’s 182,420-square-foot plant at the Mesa del Sol master-planned community, south of the airport, that year took the sting out of the economic downturn.
Headquartered in Germany, Schott closed its Albuquerque plant in the third quarter, making it the biggest negative move of 2012 in the local industrial market.
The Schott closure directly affected Fidelitone, which provided the solar manufacturer with third-party logistics, leading to its vacating the warehouse near Old Town in the fourth quarter. It was the second-biggest negative move of 2012.
Ironically, Fidelitone also had the biggest positive move of 2012, Schaefer said. In the first quarter, the Chicago-based company relocated one of its local operations from 82,000 square feet in the North Valley to 114,675 square feet at 801 Comanche NE, a property best known as the American Home warehouse.
Last year ended on a strong note in Albuquerque’s industrial market. Smith said there were 40 lease transactions metro-wide in the fourth quarter, the most deals since the first quarter of 2009.