The third-quarter opening of the Plaza @ Enchanted Hills “power center” is widely recognized as a benchmark event in the slow maturation of Rio Rancho’s retail market, according to real estate services firm Colliers International.
“It’s among the top three multi-tenant retail projects in Rio Rancho history,” said Ken Schaefer, research director at Colliers’ Albuquerque office.
Plaza @ Enchanted Hills “should help reduce Rio Rancho’s systemic retail leakage” to the Cottonwood retail epicenter across the city line in neighboring Albuquerque, says the firm’s third-quarter report on the Albuquerque metro’s retail real estate market .
Opening with national players, such as domestic merchandise retailer Bed, Bath & Beyond, fashion discounter T.J. Maxx, home decor chain Kirkland’s and arts-and-crafts retailer Michaels, Plaza @ Enchanted Hills reflects a metrowide retail market that defies the sluggish economy.
The overall retail vacancy rate was 6 percent in the third quarter, down from 6.3 percent in the second quarter and 6.9 percent in the third quarter of 2014, according to Colliers data. For perspective, the retail vacancy rate averaged 9.2 percent during the 2004-06 boom years.
Industrial, office lackluster
Two other major types of commercial real estate, industrial and office, appeared to be status quo in the third quarter in the metro. There’s activity in those two property types, since there are always companies repositioning themselves, but not much in the way of a clear direction.
The industrial real estate market looked almost as robust as retail in the third quarter, with a vacancy rate of 6.7 percent, down from 7.1 percent in both the second quarter and the third quarter of 2015. The industrial vacancy rate averaged 9.6 percent during the 2004-06 boom.
The robustness of the industrial market shows up better on paper than in real life. The tightening of the vacancy rate has more to do with the near absence of new speculative construction going back 10 years than demand for space.
Despite the comparatively low vacancy rate, the Colliers report on the local industrial market points to the underlying weakness:
“The ability of landlords to raise rates in newer or quality buildings is minimal. Pricing power is being offset by a lack of tenants in the market. The few that are seeking larger spaces is relatively low.”
The office market appears to be stuck in low gear with a vacancy rate of 20.2 percent in the third quarter, up slightly from 20.1 percent in the second quarter and down from 21.5 percent in the third quarter of 2014. The office vacancy rate averaged 13.9 percent during the 2004-06 boom.
Exceptions to the sluggishness in the broad office market are Class A office buildings like Albuquerque Plaza in Downtown, for example, or the Park Square buildings in Uptown. Only eight buildings are classified as Class A by Colliers, although the term is in common usage.
Class A buildings, both the official ones and the close wannabes, have held their appeal in the down market. One of Colliers’ official designees, the 133,000-square-foot Horizon I Building, was rendered more than half empty when Molina Healthcare of New Mexico consolidated Downtown.
With the consolidation effective in the third quarter, the vacancy rate for Class A office buildings shot up from 12.3 percent in the second quarter to 17.6 percent. Colliers expects the Horizon I Building vacancy to be filled fairly quickly, given its location in the North I-25 corridor.
Returning to the retail scene in Rio Rancho, the development of the city’s first power center at the corner of Enchanted Hills Boulevard and N.M. 528, across from an existing Wal-Mart Supercenter, is a classic example of “retail follows rooftops.”
The first phase of Plaza @ Enchanted Hills that opened in September with Bed, Bath & Beyond and the other stores was 130,000 square feet. Leasing is underway on the next phase – a Ross Dress for Less discount store is in the works – and eventually the plaza will have 240,000 square feet.
Ultimately, it will be home to more than 300 jobs, said Anthony Johnson of Pegasus Group, the plaza’s leasing agent.
A power center is a shopping center classification that is generally defined by the type of stores that locate there and, to a lesser extent, by its larger size. The common description is a shopping center with three or more category-dominant anchors, including discount department stores.
Plaza @ Enchanted Hills fits the description with its early tenant mix.
Colliers identifies only three other local retail power centers, all on Albuquerque’s West Side, Schaefer said. The Enchanted Hills plaza is shaping up to be comparable to the 218,000-square-foot Cottonwood Corners I, which opened in 1997, he said.
The Cottonwood retail submarket, centered around Cottonwood Mall, which opened in 1996, has grown to become the biggest concentration of shopping venues in the state at just over 4.1 million square feet of retail space. For comparison, Uptown currently clocks in at less than 2.3 million.
“The challenge in Rio Rancho has been the Cottonwood effect, particularly in the area south of Northern Boulevard,” he said.
Basically, Cottonwood has sucked a lot of potential retail action out of Rio Rancho, which has 12.2 percent of the metro’s core population (Albuquerque, Rio Rancho and unincorporated Bernalillo County), but only 7.5 percent of the metro’s retail real estate market.
“Rio Rancho has historically been known as a commuter city to Albuquerque,” observes a two-part report by the Department of Workforce Solutions analyzing population data on Rio Rancho.
A majority of Rio Rancho’s employed residents commute to work outside the city limits, ranging from a low of 52 percent of total workers in 2006 to a high of 64.2 percent in 2010, the report says. As of 2012, the outflow of commuters had dropped to 56.6 percent due to job growth.
Most of the outflow of commuting workers – an average of 23,251 workers a day in 2012 – head to Albuquerque and Bernalillo County. It’s not a stretch to assume that many, if not most, of those commuters find it more convenient to shop close to work rather than close to home.
The Plaza @ Enchanted Hills is an indication that residential development in the north end of Rio Rancho, away from Cottonwood’s gravitational pull on shoppers, has achieved a scale attractive to national retailers.
“Even more important is the additional retail spending that will occur from residents living in surrounding communities,” the Colliers third-quarter retail report says.