Although sale activity has begun to slow in the Albuquerque metropolitan area, there are still buyers and tenants in the market. Here at NAI SunVista, we have closed approximately 360 transactions, yet the number of our active listings remains steady. Cash is King and tends to speed a transaction to closing; however, seller financing in the form of Real Estate Contracts are on the rise the 2nd half of the year. There is still inventory available, however, it may take a bit longer to locate the best asset for you and your business.
Industry News
Labor Crisis
Although the hot pandemic job market is cooling, it is set to remain tight for years. The US economy has been experiencing an unemployment rate under 4% for nearly two years.
It isn’t just a holdover from pandemic bottlenecks when employers let millions of people go and then struggled to find workers when demand roared back, economists and business leaders say. It is a storm that has been brewing for decades. Labor shortages are turning into long-term labor crises that could push wages and turnover higher.
Work experts have warned for years the combination of baby boomer retirements, low birthrates, shifting immigration policies, and changing worker preferences is leaving US employers with too few workers to fill job openings.
“It is a talent supply chain and talent has a choice,” said Teresa Carroll, chief executive of Magnit, a firm that manages temp, contract, and freelance workers for companies. Workers are choosing arrangements such as part-time, flexible, or remote work, prompting employers to adapt to fill roles.
As a general rule, an economy is able to grow about as quickly as its workforce expands, plus any gains in how productive the workforce is. Productivity is difficult to measure. Overall, productivity growth has been mostly lackluster, rising about 1.4% a year over the past decade.
After considering AI tools such as Chat GPT whose technology is still too new, and offshoring US manufacturing, it leaves us with immigration. Immigration has come back strong after falling during the pandemic because of Covid-related policies. However, it remains a divisive issue. Business leaders indicate the lack of a coherent, stable policy is contributing to the labor problem. “If we don’t solve this with a thoughtful immigration program, we’re going to drive wage rates through the roof in the next two to three years because of the systemic shortfall of labor at the end of the day.” John Fish, chairman and CEO of construction contractor Suffolk said.
Federal Reserve Pauses Rate Hike as Inflation Slows
The Federal Reserve left the U.S. interest rate unchanged in late September, leaving the main policy rate range of 5.25% to 5.5%, citing an easing of economic conditions while also acknowledging inflation is still higher than its 2% target. The Fed is waiting to see if its historic series of rate hikes over the last 18 months continues to get inflation under control. The Fed cited, “The economy is in solid shape, with job gains slowing and tighter credit conditions likely to slow economic activity and stem inflation.”
In August, the Bureau of Labor Statistics said prices for consumers were up 3.7% from the same period last year. That’s above the 2% annual level the Fed Says it wants to see, however, is a big change from last year’s peak of 9.1%. The future of the Commercial Real Estate Market is intricately linked to developments in interest rates and the market’s corresponding adjustments.
The full repercussions of these changes are anticipated to become apparent in early 2024, shaped by the continual modifications in both interest and cap rates, along with the overall cost of capital.
Growth in Office Leasing
Contrary to earlier predictions, office leasing activity improved in the second quarter with the fastest growth rate since Q2 of 2021 according to a Jones Lang LaSalle (JLL) chart. Although we are not yet back to pre-pandemic leasing absorption, out of the 53 markets tracked, 66% saw quarter-over-quarter growth. According to Jacob Rowden, manager of JLL Research, the growth is primarily being contributed to large-scale transactions consisting of over 100,000 square feet bouncing back with 38 transactions in Q1 and 46 transactions in Q2. Additionally, sublease vacancy has begun to slow.
Flight to quality is still the dominant trend for tenants to upgrade to higher-end space as their leases expire. Class A office space has been healthy in the Albuquerque market for several quarters causing some Tenants to begin to explore premium enhancements within Class B and Class C buildings according to a recent CBRE report. Amenities such as enhanced security systems and upgraded HVAC facilities are among the top choice amenities today.
Here in Albuquerque, quality move-in ready space is scarce. Tenants in the market seeking alternative offices should allow time to tour several properties, select the best fitting space, negotiation the terms and understand construction timelines for Landlords and Contractors to perform the Tenant Improvement work. Although construction costs are coming down, labor expenses have risen causing Tenant Improvement packages to remain high.
Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
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.
Interest Rates Rise Again
The Federal Reserve announced an interest rate hike by another 25 basis points increasing interest rates from 5.0 to a range between 5.25 and 5.50%, the highest point since 2001. Chairman Powell says the Fed is concerned about global food security and constrains on the housing supply in part due to homeowners reluctant to move because they have low-interest rate mortgages.
This expected increase, following last month’s pause, is taking place as the economy continuously cools, with inflation slowing to 3.1% and core inflation (excluding food and energy costs) dropping to 4.8%, the lowest they been since June and September of 2022, respectively.
Powell’s mission going into the meeting was likely to keep market expectations of another rate rise later this year “priced as a coin flip,” said Daleep Singh, a former executive at the New York Red who is now chief global economist at PGIM Fixed Income. “Pricing the next set of decisions as a coin flip maximizes flexibility for the Fed to react to incoming data.”
In my conversations with lenders, their relationships with borrowers and being creative with their financing outweigh watching a loan go bad. Additional collateral, higher down payments, and creditworthiness of the tenant(s) all play a role in approving loans. “Lenders will continue to focus on cash flow and debt serviceability, and will remain highly selective, but can be highly competitive for deals they like,” says Henry Vuong, PGIM’s head of Real Estate Investment Research.
Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
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.
Land/Industrial – 2023 Q2 Market Review
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.
Meet Todd Strickland – SunVista’s Newest Partner
Sometimes, you know there’s this guy who just quietly works in his office, and you see him here in the mornings, throughout the day, and also in the evenings, and you just wonder, what’s he doing all the time? Well sometimes, that guy is someone like Todd Strickland who just works, and works, and works some more to go above and beyond to make sure every transaction is a win-win for both sides. Todd is well known by his clients for one especially enduring trait; he goes out of his way to make a deal work. His perseverance and tenacity have won him accolades from his clients, as well as advancement within our company.
We were able to catch up with Todd and ask him some questions about his promotion to Partner.
Q. What did you do before your career in Commercial Real Estate began?
I owned and operated a special events company out of Atlanta, GA that catered to Fortune 100 Companies on the eastern half of the US.
Q. What made you take that leap and transition into commercial real estate?
Love for my wife …. I sold my business in Atlanta, and moved to Albuquerque to be with her. I did not know what profession I was going to take on once I got here, but had faith that my God already had something MAGNANIMOUS planned for me.
Q. What changes have you seen arise in Commercial Real Estate since you began?
Technology and (most recently) Covid has made it easy to either email or text rather than connecting with Clients / fellow Brokers. I believe that it is INVALUABLE to #1 connect with Clients (external & internal) in person, and #2, pick up the phone and give clients a call to discuss any of their questions regarding CRE, or whatever is MOST important to them.
Q. What trends are you noticing in the land/industrial markets that you are either excited for?
Industrial at the moment is “king” along with ANYTHING stand alone …. Commercial Real Estate has proven time & time again to be an incredible investment here in Albuquerque. Sometimes, you just have to be patient to find just the right property …..
Q. What is the most fulfilling aspect of being a Commercial Real Estate Advisor?
Connecting JUST the right Buyer to the right Seller, and the right Tenant with the right Landlord. (All of us CRE Brokers are “Pastors” in our own right. Marrying off the Bride (Tenant) / Buyer to the right Groom (Seller) / Landlord.)
Q. What would you say has led you to success in Commercial Real Estate?
A genuine desire to serve, dig in, and do what is necessary to bring a property and a Buyer, Seller, Tenant, or Landlord together for the good of everyone involved.
Q. What would you say has been the highlight of your career to date?
Working with others who are like minded, and want to get transactions completed for the benefit of those we serve.
Q. What parts of the job do you find most challenging?
I would not say that it is challenging, but just squeeeeezing all of the good opportunities to connect into the limited length of each day ….. (There are just so many hours in a day …)
Q. Commercial Real Estate can involve risk, how do you approach it?
Risk is just part of the opportunity. You just cannot let one blip on the map derail you from successes’ end goal.
Q. Who has influenced you the most?
God.
Q. What part of each transaction tends to be over looked?
Continuing the relationship with your Client beyond the consummation of the deal ….
Q. Where can we find Todd on the weekends?
Hiking the trails of northern New Mexico, spending time with my family, helping friends with projects of any kind, and relaxing with my wife.
To see what others are saying about Todd click here.
Meet DJ Brigman – SunVista’s Newest Partner
Have you ever watched the face of a person determined to win? Have you seen the strength of mind, the willpower and the resolve to rise above and grab the prize? Well, if you haven’t, perhaps you have not been watching DJ Brigman in his quest to make Partner. He set his sights, marked his goal and made it happen.
We teed up a conversation with DJ to discuss his promotion to Partner.
Q. What did you do before your career in Commercial Real Estate began? I played 17 years of professional golf. Played on the PGA Tour, traveled the world and have a total of 13 tournament wins.
What made you take that leap and transition into commercial real estate? When I decided that traveling 25-30 weeks a year was no longer in the cards, I didn’t know what I wanted to do. Honestly, I thought I would transition into medical device sales. That door did not open and on a chance conversation with an acquaintance the commercial real estate seed was planted. I didn’t know a thing about commercial real estate, but I started researching the industry and liked what I saw. I interviewed with multiple firms in Albuquerque but landed at NAI SunVista because of a podcast interview I listened to that Dave Hill did back in 2015. As a result of that podcast, I reached out to Dave and an amazing journey started.
Q. What changes have you seen arise in Commercial Real Estate since you began?
Technology has been the biggest change in CRE. It is ever evolving and amazing the type of research one can do at the touch of a few buttons.
Q. What trends are you noticing in the office/industrial markets that you are either excited for?
The work place is evolving which is good for CRE. This means they will need to renew their leases, right size, or even look at owning instead or leasing. All mean they will need an expert to help make pivotal decisions for the future of their businesses.
Q. What is the most fulfilling aspect of being a Commercial Real Estate Advisor?
The most fulfilling part of CRE is helping business owners realize their dreams and being a small part of that success. Finding that perfect location, helping that business owner expand, or being a resource for questions relating to the market all bring satisfaction to me.
Q. What would you say has led you to success in Commercial Real Estate?
The quote that resonates with me is “I am pleased but not satisfied.” To be successful in professional golf you need to be self-motivated, driven, mentally tough, and refocus quickly. All of those ingredients applied to CRE with the ability to converse with people have led to my success.
Q. What would you say has been the highlight of your career to date?
The highlight of my career have been making top 5 as producer in my first year in the business, becoming a owner in the company, and a achieving Partner.
Q. What parts of the job do you find most challenging?
Time management. This profession requires one to juggle many “balls in the air”. Managing expectations and responding in a timely manner can be a challenge.
Q. Commercial Real Estate can involve risk, how do you approach it?
Being a professional golfer required risk. You had to evaluate each shot, weigh the risk/reward, commit to your decision and execute. For me risk equals reward and I have always been willing to “take the shot” when needed.
Q. Who has influenced you the most? I have been lucky to have many influences in my life.
When it comes to CRE, Dave Hill, CCIM, SIOR has been a great mentor, friend, and partner. He took a chance with me, saw the potential, set the foundation, and let me do my thing!
Q. What part of each transaction tends to be over looked?
What I enjoy about each transaction is that they are all fluid. Different parts of the deal pose challenges. Seeing the process from start to finish requires multiple steps, problem solving and what I do well.
Q. Where can we find DJ on the weekends? On the weekends you can find me hanging out with my wife, working out, playing some golf, and lighting up the grill.
To see what others are saying about DJ click here.
The Return to Office and to Retail
In early June, Jones Lang LaSalle’s CEO Christian Ulbrich reported the Return to Work “Worst is Behind Us.” Headquartered in Chicago, Illinois, Ulbrich went on to say he is seeing 65% of its employees return to the office full time. According to a CNBC report, Dallas, Houston and Charleston, SC are markets where office occupancy is more substantial because those cities didn’t have as strict lockdown policies in the past few years. However, workers in other markets, especially on the coasts, are still reluctant to return. As a measure of tracking employee attendance at the office, some employers are “tracking office badge attendance” and confronting workers who are not complying with company policy. Albuquerque has been “back to the office” for well over a year now. That said, the pandemic did cause attrition of due to Covid health risks, early retirements, and care duties, including working moms who found staying at home with their children beneficial to both themselves and their families.
In addition to returning to the office, consumers are returning to dining out and brick-and-motor shopping. Although recent macroeconomic changes and wider societal and technological innovations have led to shifts in shopping behavior, brick-and-mortar locations remain the primary channel for consumer purchases in the United States. This is true for both retail and office locations. Foot traffic analytics, which reveal how consumers behave in brick-and-mortar retail outlets, can provide critical insights into current consumer preferences. Landlords can use this information to their benefit to best understand who is visiting their retail and office buildings. Are the visitors the Tenant employees who come and go daily, or are they customers and clients of the Tenants? Here at NAI SunVista we have the ability to help Owners, Landlords and Tenants track such traffic. If this is of interest to you, simply reach out to me and I will be happy to run the numbers for you!
Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
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.
Federal Reserve Pauses on Interest Rates (For Now.)
After a 15-month interest rate hike increases, in mid-June, the Federal Reserve hit pause on increasing the interest rate, for now. By mid-month, Chairman Powell cautioned, “don’t expect the most recent rate hike pause to continue. However, he went on to say, “Price stability is the responsibility of the Federal Reserve, and without it, the economy does not work for anyone. In other words, inflation must return to the 2% level that the Fed and other banks say is the desired level. Look for the Fed to provide additional interest rate hikes as well as continued quantitative tightening reducing the amount of liquidity in markets. Because inflation pressures continue, the process of getting inflation back down to 2% has a ways to go. “The Fed’s forecasted terminal rate increased another 50 bps, doubling down on a “higher for longer” run on rates. Although we have been expecting a recession for the past 10 months, there has been no sign of any economic downturn in the United States. That said, the continued rate increases most certainly will push the economy into a recession, potentially within the year.
You might ask, what is the best way to be successful in a recession? Plan. Take advantage of opportunities, such as buying low. Know your company’s strengths and weaknesses and capitalize on them. Cut unnecessary costs. Make everything you do count! As with the great recession, there will be opportunities. Keep your eyes peeled, ears open and work with an Advisor to help you get the most bang for your commercial real estate buck.
Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
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.
