Vacancy rates level off as new construction gathers momentum
Research and Analytics provided by Riley McKee
For the first time in over a decade, speculative new construction of industrial real estate is underway in Albuquerque. Roughly 230,000 square feet of distribution warehouse space in the West I-40 and South I-25 Corridor submarkets is projected to be finished before the year’s end with another 360,000 square feet of similar space breaking ground in the coming months.
While completion of these new buildings will ease downward pressure on the supply of available space, demand dynamics remain very strong. The vacancy rate descended slightly from 0.96% in December of last year to 0.89% in the first quarter of 2022, yet another record low. This trend is mirrored in the supply of available space which currently sits at just over 350,000, down from 372,000 square feet at the end of 2021.
Increasingly aware of these circumstances, landlord expectations for rent payments have dramatically shifted. The median triple-net (NNN) asking lease rate is $9.43/SF, up 7.28% from the same figure at the end of last year. The median modified gross lease rate in Q1 of 2022 ($11.75/SF) is a staggering 17% higher than it was just three months ago ($10.01/SF).
At some point in 2022—possibly even now—the vacancy rate is likely to finally bottom out. However, demand for industrial real estate is poised to remain high. The aforementioned new construction projects are but a small fraction of Albuquerque’s market and with an average size of about 76,000 square feet, they only cater to a narrow pool of large tenants. There remains a noteworthy shortage of (and high demand for) space smaller than 20,000 square feet that does not currently have the prospect of new construction to look forward to. Moreover, New Mexico’s recent legalization of marijuana and the Federal Reserve’s planned interest rate hikes throughout 2022 benefit the market for leasable industrial real estate. The former will result in demand for space for growing and processing while the latter will increase the cost to borrow funds, transitioning the balance of affordability for users of industrial real estate away from purchasing and in favor of leasing.
The Land and Industrial Q4 market research and data is compiled by NAI SunVista commercial real estate land and industrial specialist, Riley McKee. Riley advises industrial and logistics real estate owners and occupiers on leasing, acquisitions, and dispositions.