Lease rates are on the rise…will the vacancy rate follow?
Research and Analytics provided by Riley McKee
In recent years the vacancy rate for industrial real estate in Albuquerque has set a new record low just about every quarter. Once it fell below 1% in Q4 2021, it was only a matter of time before the trend would reverse. Figures for Q4 2022 indicate this reversal may be underway with the vacancy rate increasing to 1.27%.
This is not necessarily bad news, though. Long awaited new construction of space is nearing completion, growing the size of the market and giving tenants more and better options to choose from.
– The sum total of existing space available for lease is now more than 500,000 square feet for the first time since September 2021. This can be viewed in two ways: perhaps the market is softening after several historically strong years; it also could be the result of a new equilibrium in the supply and demand curves as lease rates have aggressively pursued demand for space in recent quarters.
– The median triple-net (NNN) asking lease rate is nearing $12 per square foot. A significant majority of vacant space now has a double-digit price tag.
– Speculative buildings under construction that have been referenced in previous editions of this report are nearing completion. By the end of the second quarter of this year, several will be available to occupy. Consistent leasing activity at these projects should lead to more, with a backlog of 2,000,000+ square feet of proposed space currently being marketed but not yet under construction. Costs and interest rates continue to be a challenge but have thus far slowed, rather than stopped, projects moving forward.
– New construction of smaller space with unit sizes ranging between 2,500 and 20,000 square feet remains a rarity. Only one such project—a 15,000 square foot office/warehouse in Rio Rancho is underway while a few others have been proposed.
What’s the outlook for 2023? For the most part, more of the same. Recent increases to the vacancy rate still pale in comparison to the overall lack of quality space available. If figures presented in today’s report were doubled, the total amount of vacant space in the market would just barely exceed 1,000,000 square feet, increasing the vacancy rate to 2.54%. Both numbers are comparable to market conditions in December 2020, hardly a weak time in the Albuquerque industrial real estate market.
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.