ALBUQUERQUE, N.M. — Albuquerque’s vacancy rate on industrial buildings reached its lowest recorded level earlier this year, but that doesn’t mean residents should expect to see a bunch of new warehouses going up anytime soon.
CBRE Group Inc. released a report on Albuquerque’s industrial market during the first half of 2019, that notes that metro Albuquerque’s industrial vacancy rate stood at 3.3%, the lowest rate since the real estate firm began gathering data on the market in 1983, according to JJ Peck, research manager for CBRE.
Since the start of the year, the market has added nearly 948,000 square feet of new development, driven by projects like the 107,550-square-foot FedEx truck terminal west of Albuquerque, according to the report.
The decline in available space however has not led to an uptick in new development or a rise in lease rates so far. Indeed, the report notes that the median listed lease rate actually declined slightly since 2018, to $6.66 per square foot.
Jim Smith, first vice president for CBRE’s Albuquerque office, said that rate is nearly $1.50 below what many developers would look to see before they’re comfortable building warehouses on spec: without a tenant lined up. Even with an economy that’s improved in recent years, Smith said it’s going to be a challenge to find space for companies looking for quality warehouse space to expand into.
“There isn’t any place to put anybody,” Smith said.
Smith added that the vacancy rate peaked in Albuquerque around 2010, when the Great Recession emptied out warehouses and slowed development for years to come. Since then, Albuquerque, along with other large Southwestern markets, has seen a steady decline in the amount of available warehouse space. Peck said that declining vacancy rate has intensified since 2016, when the effects of a recovering national economy took hold in the Southwest.
Peck said data centers, like the massive 440,000-square-foot facility that opened in Los Lunas in February, have played a big role in this expansion across the region.
“There is a big expansion in data center construction in Las Vegas, (Nev.), in Phoenix, in Salt Lake,” Peck said.
Unlike in Las Vegas, however, Peck said the new development hasn’t translated into more speculative development in Albuquerque. Smith added that Albuquerque’s smaller population and small number of property transactions makes it harder for developers here to justify speculative building.
“It’s just all those little nuances that make people cautious,” Smith said.
Smith attributed the slight decline in lease rates to the fact that most of the newer industrial buildings have already been leased, meaning that companies are largely choosing between older, less-desirable buildings.
Looking ahead to the rest of the year, the report notes that built-to-suit construction is expected to continue to stay strong, accounting for roughly 80% of the 741,589 square feet currently under construction. Even with limited space, Smith noted that New Mexico has seen more relocations since 2016.
“We’re on more people’s radar,” Smith said.