The Metro's Industrial Space Was in Great Demand in 1st Quarter
By Richard Metcalf
Journal Staff Writer
Industrial space was rented out at an "amazing" pace during the first three months of this year, according to the latest market report from Grubb & Ellis/New Mexico.
"Over 500,000 square feet of space was absorbed in the first quarter," says the report on the metro area's market for industrial space. "This almost equals all the space absorbed in 2005."
The vacancy rate for industrial space dropped from 10.5 percent in the fourth quarter of 2005 to 8.8 percent in the first quarter, according to Grubb & Ellis. A change of one percentage point or more in a single quarter is rare.
The last time the vacancy rate was that low was the second quarter of 2002, when it hit 8.7 percent, said Ken Schaefer, director of brokerage services at Grubb & Ellis.
"Demand for industrial space was being driven by the $270 million renovation of the Big I interchange and the construction of Intel's $2 billion Fab 11X," he said in an e-mail about 2002's low point.
The recent drop to an 8.8 percent vacancy rate was not triggered by one or two mammoth deals— the sudden leasing of a giant empty building, for example— but by a sustained, high level of activity.
"We got lots of calls from local people saying, 'We need space,' '' said Jack Dettweiler, an industrial specialist at Grubb & Ellis. "That's a good sign. I think our economy is in good shape."
In addition to the high level of activity, John Ransom of Grubb & Ellis noted, "It was also the size of the deals."
The first quarter saw some sizable leases for the Albuquerque metro market. According to Grubb & Ellis, the bigger moves were:
The Millwork Co., a new subsidiary of Albuquerque-based Source One Distribution, opened in a 71,000-square-foot plant in Meridian Business Park. Source One supplies interiors and equipment to the restaurant industry.
Duke Contractor Services moved into 62,500 square feet at 702 Carmony NE. Formerly Duke Insulation, the locally owned company was purchased by Masco Contractor Services of Daytona Beach, Fla., and is now expanding.
Verizon Wireless opened a call center in the 62,000-square-foot building at Wyoming and Harper NE that had housed an MCI Inc. call center that closed in July 2004. Verizon intends to vacate the building this summer for a larger one on the West Side.
Albuquerque-based UniRac Inc., a solar energy support company, moved into 60,800 square feet at Springer Industrial Center as part of an expansion.
Signs of change
Another phenomenon seen in the first quarter was the comparatively quick leasing of industrial space that had been recently vacated.
"Previously, it would take a year to lease some of those spaces," Schaefer said.
Leasing, as well as lease rates, has been stagnant for several years as companies took advantage of a healthy economy and low interest rates to build their own buildings.
The drop in vacancy rate in the first quarter is a sign of change.
"In the last three years, anybody who could afford to buy or build their own building has done so," Dettweiler said. "Now there's a shift, but it's a healthy shift."
Although interest rates haven't risen dramatically, the costs of land and construction materials have. Most observers agree there's a slowdown in new industrial projects because of cost.
As a result, there is more interest in leasing existing space. As demand gobbles supply, lease rates edge up.
"Rates go up because there's no inventory and landlords can charge more," said Bill Robertson, industrial specialist at Grubb & Ellis. "New construction will pick up when the (rising) rates justify it."
Terry Johnson of Real Estate Advisors pointed out that the direction of the industrial market could have a dark side.
"One of the issues is if we don't have a lot of available product, we could see a slowdown" in the local economy, he said.
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