While the initial effects of the coronavirus are becoming visible in Albuquerque’s commercial real estate market with closures of retailers and restaurants, both industrial and office real estate markets are remaining strong, according to a recent report from Colliers International Albuquerque.
The report, which examined commercial real estate from April through June, found that retail space is already starting to see the consequences of store closures on both the local and national levels. National chain closures and bankruptcies were cited as contributing to vacancies. Several large retailers with Albuquerque locations, including Sweet Tomatoes and Pier 1 Imports, announced bankruptcy and the closure of all facilities. Closures of multiple local restaurants – from The Cooperage to the original location of Garcia’s Kitchen on Fourth and Mountain and the Range Cafe on Menaul – also contributed to the impact.
While some new large-footprint retailers opened up – including Tin Can Alley on Alameda and San Pedro – Albuquerque still saw 46,100 square feet more of commercial space vacated than was leased.
However, losses were relatively modest due to the closures primarily stemming from small-footprint sites versus the closure of big box stores, according to Colliers International Albuquerque vice president Ben Perich.
Perich said excluding restaurants, many of the retail closures and bankruptcies stem from businesses that were already struggling pre-COVID.
Areas with the highest shares of vacancies were Cottonwood, the Southeast Heights, and the far Northeast Heights.
Despite the economic downturn, however, industrial real estate continues to be a strong market, according to the report. The second quarter saw an additional 83,000 square feet of space leased.
During this time, the construction of a new Amazon shipping and fulfilling center was also announced on the city’s West Side.
“Demand for shipping and fulfillment centers is likely to increase due to an increase in online shopping as many people stay home during the pandemic, a trend retailers believe will persist for some time,” the report said.
The demand in industrial space in the city may not be fully driven by the pandemic. According to the report, industrial spaces in Albuquerque have been close to fully leased for quite some time.
Senior vice president and principal Bill Robertson said that the small vacancy rate of around 2.5% is largely made up of spaces that are outdated and obsolete.
“Market is very hot just because there’s no inventory available,” he said.
Colliers said demand for industrial spaces will most likely continue to rise, especially as the potential for a coronavirus vaccine nears – which will result in greater pressure on manufacturers and distribution – but there probably won’t be much new construction of industrial spaces.
Robertson said construction costs in Albuquerque can be as much as 40% higher than other major cities, which limits growth across the board.
Even with many office workers telecommuting from home, the office real estate market also remained strong.
However, report authors noted, Albuquerque real estate tends to lag, and effects of the pandemic may not be felt fully until later.
Colliers said the future for office layouts may change since prior to the pandemic many employers were moving toward more communal and open spaces for offices. The increased focus on sanitizing and social distancing may alter this trend.
“Remote work will also have a large impact on how the office of the future looks for both employees and employers,” the report said. “While not all jobs can be
completely remote, many employers will likely continue to utilize remote work at least partially to make the best use of their current spaces.”
But senior vice president and principal Keith Bandoni said there is a demand from companies to slowly progress back to office environments pre-coronavirus and businesses, and he doesn’t expect the office market to change much.
Any changes made to office layout or capacity will most likely be temporary, he said.
For now, rental rates in offices are around $19.43 per square foot, up from the first quarter of the year, and rental rates are remaining strong with vacancies decreasing.