For nearly two decades Albuquerque has not built speculative distribution warehouses, however, the recent strength of the market is giving developers confidence to break ground and investors are paying attention.
Industrial activity has been lively, particularly the result of accelerated macro trends of the Pandemic and the legalization of recreational cannabis. Albuquerque’s industrial vacancy rates have remained below 1 percent for over two quarters- following vacancy rates hovering around a “then historic low” in the 2 percent range since September 2019. The demand from users has continued to climb and tenants are facing lease rate increases.
While needing more speculative warehouses should be a matter of basic economics, it is not always easy to build in a tertiary market that lacks the memory of growth. Historically, Albuquerque would only secure a few 50,000 square foot users per year and the occasional 100,000+ square foot user, deterring developers from taking a chance on new construction. However, times are changing. Large tenants are taking note of Albuquerque’s access, affordability, and workforce, while existing users are seeking modern buildings for efficiency and growth.
These factors combined with rental rate growth and a decrease in available space, has developers working to provide some relief in the form of new construction. Across the Albuquerque MSA there is currently over 230,000 square feet of new speculative construction in progress with an additional 360,000 square feet planned- none of which includes owner/user or build-to-suit construction. These projects will eventually translate into breathing room for tenants, but it will take time for the market to catch up.
NAI SunVista’s industrial brokerage team currently represents two speculative industrial projects, including Titan Development’s Westpointe 40 Industrial Speculative building- a 150,000 square foot distribution warehouse set to break ground in May of this year. The firm has been successful in developing speculative industrial projects in several Texas markets and are energizing their initiatives in Albuquerque. When asked why they now decided to build speculative industrial in New Mexico, Brian Patterson, Senior Vice President of Titan Development, said, “When we started to see the uptick in lease rates in 2019/2020, we were able to better prove our underwriting and move forward with a spec program.” Titan isn’t just looking at this project as a one-off, they have plans for a long-term Business Park in the heart of Albuquerque’s West I-40 distribution hub as a result of this demand.
Speculative construction isn’t only desired by users, there is growing fanaticism in the investment world as capital aggressively chases industrial assets. Patterson stated, “We have seen a strong response from institutional buyers interested in industrial development and investment opportunities in New Mexico. Many institutional groups are chasing higher yield and less competition as compared to markets such as Phoenix, Denver, DFW, Inland Empire, etc.”
Tertiary markets with healthy market indicators are gaining momentum, and Albuquerque is one of them. With Amazon, Facebook, Netflix, and other distributors investing in Albuquerque’s community, it’s setting the stage for more industrial growth and at last, new speculative construction.
Written by: Alex Pulliam Land & Industrial Advisor, NAI SunVista
NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.