Land & Industrial

Vacancy stabilizes after sharp increases in recent quarters

Research and Analytics provided by Riley McKee, CCIM

For seven consecutive quarters dating back to Q3 2022, the vacancy rate has increased steadily from its record low of 0.93% to 3.61% today. However, the most recent increase between Q1 and Q2 of this year is by far the most nominal (3.58% to 3.61%) and suggests that the vacancy rate may be stabilizing.

As of June 30, roughly 1,448,000 square feet of industrial real estate scattered across the Albuquerque MSA is vacant and available forlease. This figure continues to be skewed by the presence of a uniquely large vacancy (located at 9201 San Mateo Blvd. NE and detailed in previous editions of this report) that alone is responsible for just under 35% of the total vacant space.

In the fourth quarter of last year, that property and three others with a combined size of about 698,000 square feet all came to market withina few weeks of each other. Two others totaling 76,000 square feet became available during the first quarter of this year. Added together,these six vacancies have contributed almost three quarters of a million square feet to the market, over half of the total vacant space. All of the remaining vacant space (roughly 675,000 square feet) is shared among 74 different properties with an average size of 9,100 square feet.

Download: Q2 2024 Land & Industrial Quarterly Report

The Land and Industrial Q1 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.

Vacancy at a 5-year high – a sign of a slowing market or something else?

Research and Analytics provided by Riley McKee, CCIM

The vacancy rate for industrial real estate in Albuquerque has increased above 3% for the first time since 2019 and is about four times higher than its all-time low two years ago. As landlords have adjusted to extraordinary demand by raising lease rates, the availability of space is normalizing. All things considered, this is good for the market.

As of this writing, the sum total of industrial space for lease is about 1,435,000 square feet. This figure has nearly tripled since the end ofthe first quarter last year, though a significant portion of the increase is concentrated in a few bulk vacancies that have come to market inrecent months. A facility formerly occupied by Honeywell (detailed in the last version of this report) remains the largest vacancy at 475,000SF. This space alone represents almost one third of the total vacancy in the market. Three other properties at or above 50,000 square feet were recently brought to market. When combined, these four spaces contribute roughly 695,000 square feet to the market—almost half of the total vacant space.

Just as measures of inflation rightly differentiate multiple factors that can influence the statistic, it is important to account for how the vacancy rate is distributed and not simply acknowledge the top line number. Outside of the four large vacancies mentioned above, the balance of current vacancies—including core space in the 2,500 – 25,000 SF range—adds up to only 1.8% of all existing space, signaling a still tight market.

Download: Q1 2024 Land & Industrial Quarterly Report

The Land and Industrial Q1 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.

Vacany rate increases are acclerating; a troubling sign or a return to normalcy?

Research and Analytics provided by Riley McKee

At 2.72%, the vacancy rate for industrial real estate in Albuquerque is at a two year high. This signals that the market is probably normalizing after several years of extremely limited supply.

The sum total of vacant space now exceeds 1,000,000 square feet for the first time since 2020. New construction, along with a couple of bulk vacancies (more on that below), are primary contributors to this increase. Highlighted in the last edition of this report was the completion of two new buildings (bulk distribution warehouses located at 9210 Daytona Rd. NW and 3750 Prince St. SE, respectively) which, combined, contribute roughly 200,000 square feet of space to the overall vacancy rate (as of this writing). 

The median triple-net (NNN) asking lease rate continues to stabilize in the low to mid $11.00 per square foot range. Of the 78 spaces currently on the market, only 7 have an asking price below $10.00 per square foot. Modified gross lease space is making a bit of a comeback. After nearly disappearing as a category in recent years, there are currently 21 properties with that lease structure on the market with a median asking lease rate of $13.92/SF.

Download: Q4 2023 Land & Industrial Quarterly Report

The Land and Industrial Q3 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.

The vacancy rate continues to rise as new construction projects are completed.

Research and Analytics provided by Riley McKee

The vacancy rate for industrial real estate in Albuquerque has doubled year over year from its record low of 0.93% at the end of September 2022 to just over 2% today. 

The North I-25 corridor has the most vacant space with roughly 250,000 square feet currently on the market. Submarkets west of the river and north of I-40 have the lowest amount of vacant space. Only one building in that geographic area is currently available: a 15,000 SF warehouse in Bernalillo.

The median triple-net (NNN) asking lease rate has decreased for the second consecutive quarter and currently sits at $11.34 per square foot. Nearly all industrial space on the market has a price tag at or above $10.00 per square foot, though, which may be the floor for lease rates until the vacancy rate returns to its historic average of around 5-6%.

New construction of industrial space has ground to a halt. While about 1,500,000 square feet scattered across a dozen or so projects is still being marketed, as of this writing no actual construction is underway. The interest rate environment is most likely to blame, as both construction financing and permanent financing costs are pricing developers out of the market.

The market for owner-occupied industrial real estate is in a similarly strong position. The median asking sale price for a vacant industrial building is $130 per square foot, a rising figure but still well below replacement cost. Many users find it more affordable to purchase and renovate existing space rather than building from the ground up.

Download: Q3 2023 Land & Industrial Quarterly Report

The Land and Industrial Q3 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.

The vacancy rate is increasing, but it’s still well below the historical average.

Research and Analytics provided by Riley McKee

Since the end of Q3 2022, the vacancy rate has steadily increased from a record low of just under 1% to its current level, roughly 1.6%. 

• About 625,000 square feet of space is currently available, up from 550,000 at the end of the first quarter. The North I-25 corridor continues to have the highest amount of vacant space (roughly 280,000 square feet) while submarkets west of the river remain very short on space. The largest existing vacancy (a manufacturing facility in the North I-25 corridor) is just under 45,000 square feet. The smallest existing vacancy (1,075 SF) is an office/warehouse building in the South Valley.
• The median triple-net (NNN) asking lease rate has decreased from the previous quarter’s record high ($12.17/SF) to $11.52/SF. This is likely in response to the vacancy rate increase, though 80% of all spaces currently being marketed still have a price tag at or higher than $10.00/SF.
• New construction of industrial space continues but is slowing. A ±60,000 square foot building in the North I-25 corridor was completed in the second quarter. As of this writing it is about 70% leased. Two other buildings are well underway and should be delivered to the market in the third quarter: a ±150,000 square foot distribution center located in the West Mesa submarket that is about 30% preleased and a ±150,000 square foot distribution center in the South Valley. While several other new construction projects are being marketed, none have yet broken ground.   
• In late June, a ribbon cutting ceremony was hosted to celebrate the opening of the Sunport Blvd. interchange which now links the intersection of Broadway Blvd. and Woodward Rd. to I-25. This project has been in the works for decades and dramatically improves accessibility to and from the area. While industrial property owners along the Broadway corridor north of Rio Bravo and south of Gibson stand to benefit the most, this is another benchmark improvement for the South Valley submarket which has seen several hundred million dollars in new investments (public and private) in the last five years.

Macroeconomic trends remain a challenge. The interest rate environment is unlikely to improve this year, but it also may not get worse. Inflation is tapering but not yet at the 2% target rate. Construction costs are still high. These and other factors may cause the industrial real estate market in Albuquerque to stabilize further but overall, the local market remains strong.

Download: Q2 2023 Land & Industrial Quarterly Report

The Land and Industrial Q2 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.

The vacancy rate creeps up; new construction arrives.

Research and Analytics provided by Riley McKee

 – For the second consecutive quarter the vacancy rate for industrial real estate in Greater Albuquerque has increased, albeit very slightly. It currently sits at 1.39%. This remains very low by historic standards, as high demand persists for warehouse space of any kind.

 – About 550,000 square feet of existing space is available, roughly 40% of which is located in the North I-25 corridor. Submarkets with the lowest amount of vacant space are Rio Rancho (with a grand total of 13,660 SF) and the West Mesa, which currently has no existing vacant space (new construction is on the way, though, more details below).

 – The median triple-net (NNN) asking lease rate has now gone above $12/SF annually. This could be a high watermark as lease rates appear to be leveling off, but with vacancy as low as it is, it’s not unreasonable for asking lease rates to remain in the $12/SF range for some time, possibly into next year.

 – The first of several buildings under construction (a ±80,000 SF distribution center in the South Valley) was completed in Q1 2023. Two others—a ±150,000 square foot distribution center located in the West Mesa submarket and a ±60,000 square foot office/showroom/warehouse building in the North I-25 corridor—will likely be available to occupy at some point in Q2 2023. Another ±150,000 square foot distribution center in the South Valley is not far behind. All told, roughly 590,000 square feet of new construction industrial space will be added to the market before the year ends.

 – Developers looking to get in on the action should seriously consider projects that offer smaller unit sizes, particularly in the 2,000 – 5,000 square foot range. Only one such project (a 15,000 square foot building in north Rio Rancho that can be demised into 5,000 square foot units) is underway. When compared to the 590,000 square feet of large-scale space in progress, the near total lack of new construction of smaller-scale industrial space is a clear indicator of the next big development opportunity.

Macroeconomic indicators including interest rate increases, bank failures, inflation, and labor shortages continue to dominate the news, but industrial real estate as an asset class is well positioned to weather any of these gathering storms. Vacancy remains low, lease rate increases are outpacing inflation, and not enough new space is being built to soften demand.

Download: Q1 2023 Land & Industrial Quarterly Report

The Land and Industrial Q1 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.