WESTERN SNAPSHOT, APRIL 2011

Albuquerque, N.M. Industrial Market

Albuquerque’s industrial vacancy rate remains in single figures with fears of double-digit vacancy rates beginning to fade. With net absorption at 161,066 square feet, the sector ended first quarter 2011 with a direct vacancy rate of 7.2 percent, down from the previous quarter. At $6.89 per square foot, the average industrial market rental rate ended first quarter the same as the previous quarter, marking the first quarter in more than 3 years when the rental rate has not fallen from the previous quarter. However, the figure represents a 5 percent decrease in quoted rental rates from a year prior and a 31 percent decrease from the $9.05 per square foot at end of first quarter 2009.

First quarter absorption marked the second consecutive quarter of positive absorption for the overall Albuquerque industrial market. The positive absorption of 286,635 square feet in fourth quarter 2010 had followed negative absorption in 7 of the previous 8 quarters. The fourth quarter transaction that had the greatest positive impact was Central New Mexico Community College’s purchase of the 247,000-square-foot former Motorola facility. The campus will house working labs for CNMCC’s School of Applied Technology.

Although the conversion of industrial space for other uses has statistically had the greatest impact, the reemergence of industries and expansion of companies that had left Albuquerque or had downsized during the economic recession is providing the local market with the most confidence that it has hit bottom and is turning the corner. These reentries have contributed to the decrease in the current vacancy rate (down from the recent historical high of 7.8 percent in third quarter 2010). An example is Albuquerque-based American Home Furniture, which vacated 225,000 square feet of its 379,000-square-foot distribution facility in 2008 due to the burst of the housing bubble. In first quarter 2011, AHF expanded back into 52,488 square feet of the facility and another 45,000 square feet was leased to an expanding local moving and storage company.

Last year’s lease-up of the 87,596-square-foot building at Mesa del Sol vacated by Advent Solar in 2009 was the biggest success story of the year in the industrial market. Most of the building was rented by MSR-FSR under a similar type of use — providing support services to the semiconductor, solar and pharmaceutical industries — as the previous occupant.

Despite improving trends, recent consecutive quarters of negative absorption and rising vacancy rates have had a lingering impact on the market. The decrease in rental rates and corresponding property values is being welcomed by many tenants, users and segments of the industry. Many believe lower rates will stimulate leasing, sales and construction activity, which has been described as “frozen” for the last couple of years. The sale of the 109,835-square-foot former Sparton Technology Corp. plant, which was originally priced at $7.2 million when it closed as a cost-cutting measure in 1998, is an example that supports this proposition. An expanding homegrown business recently purchased the property for $4.5 million. The absorption will not be reflected until the second quarter when the buyer takes occupancy.

There are other signs that support the cautious optimism that this 57 million-square-foot market is in the beginning of a slow and gradual recovery. There had not been a start of a significant industrial building since second quarter 2008. At an estimated cost of $24 million, U.S. Foodservice Albuquerque has begun construction of a 135,000-square-foot new distribution center, a cold-storage facility expected to be complete by October.

— Tom Jenkins is a principal/qualifying broker at Real Estate Advisors in Albuquerque.

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