Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/818922
M A R K E T H I G H L I G H T: N E W M E X I C O 38 • May 2017 • Western Real Estate Business www.REBusinessOnline.com The New Mexico multifamily mar- ket, more specifically Albuquerque, recorded an impressively strong 2016 with vacancies dropping below 5 per- cent. Asking rents have increased for three consecutive years, fueling the in- vestment market both in volume and prices. Employment grew by 2,700 jobs in Albuquerque last year. More than 2,000 of those were added in the fourth quarter, making it the strongest employment growth quarter in more than four years. Mining, logging and construction led the way in job cre- ation, growing their sectors by nearly 8 percent. Professional, business ser- vices and the hospitality sector also strengthened on the job front. This ex- pansion drove demand for multifami- ly units, pushing vacancy downward. The vacancy rate in Albuquerque declined 60 basis points in 2016, fol- lowing a 100 basis point drop in 2015. Rents dropped slightly in the fourth quarter, but year-end 2016 asking rents were up 4 percent over 2015 to an average of $776 per month. Rent growth in the area has averaged 2.7 percent per year since 2014. Developers stepped up to the plate in 2016, answering the demand for more units. The market received 675 new units with about 1,000 more cur- rently under construction. One of the new highly anticipated projects is the Broadstone Northpoint community being developed by Titan Develop- ment. This 226-unit, Class A project is situated on 10 acres in the north I-25 neighborhood. Construction com- menced in November 2016. This de- velopment reflects the nationwide trend toward luxury amenities. Units will feature crown molding, nine-foot ceilings, oversized closets and open kitchen floor plans. The property will also contain detached garages, a fit- ness center, business center and re- sort-style pool facilities. These types of projects are in high demand by ten- ants and investors alike. The sales of multifamily communi- ties picked up pace in the fourth quar- ter, more than doubling the sales of the third quarter. Sales activity rose more than 40 percent in 2016 over 2015 lev- els. Projects containing a total of 1,800 units changed hands last year. Prices also rose to a median level, topping $85,000 per unit. This marks a 23 per- cent increase over the median price in 2015. The high-end spectrum proper- ties at $10 million or higher were a lit- tle slower to sell in 2016. The median prices, however, still rose significantly from a median price of $87,700 per unit to $126,500. The value-add segment of the mar- ket was particularly active during 2016. Very popular submarkets are seeing investors in search of proper- ties built during the 1980s and 1990s that can be modernized for upside ap- preciation. An example of this is the highly sought after Northeast Heights neighborhood of Albuquerque. This area is particularly coveted and rarely can you find a raw parcel for devel- opment. The Presidio at Northeast Heights was sold this past year, exem- plifying this trend. The previous own- ers neglected the asset to the point that both interior and exterior renova- tions were needed. The property sold well above the median price and cap rate for the city, and renovations to the property have been warmly embraced by tenants. Additional rental rate gains are ex- pected throughout 2017 in Albuquer- que. Strong conditions continue to drive the investment market where activity levels are dynamic and prices are rising. Investor demand should be healthy this year, but interest rate hikes could add some uncertainty by influencing cap rates and transaction volume. ALBUQUERQUE MULTIFAMILY PRICES RISE ON HEELS OF RENTAL RATE INCREASES Cynthia Meister Associate Broker, Colliers International ALBUQUERQUE'S OFFICE MARKET STRUGGLES TO RECOVER The New Mexico office market heart is found in Albuquerque. Dur- ing the first quarter of 2017, the Al- buquerque office market has seen an increase in activity from local compa- nies looking for newer and updated spaces, but not necessarily more space. The office market has been the last to see any type of recovery after the recession. The vacancy rate remains steady at about 21 percent. Continuing through 2017, we antici- pate moderately positive absorption. Albuquerque remains over-built and under-demolished, with many office buildings being functionally obso- lete. Other than two new, build-to- suit medical buildings, one being 43,000 square feet and the other being 90,000 square feet, there are not any planned speculative office buildings. State Farm recently announced it will vacate 35,000 square feet and move its call center operations to Arizona. Prime Therapeutics has downsized from 67,000 square feet to about 25,000 square feet. These shifts will yield two properties with large contiguous spaces, an excellent opportunity for tenants with large space requirements. However, there are fewer opportunities for those looking for updated spaces. There are currently less than 10 modern office buildings for lease or sale. As such, modern Class A office build- ings continue to have high occupan- cy rates. They also do not appear to be discounting rates. Class A rates are about $22 per square foot to $23 per square foot and holding. The hottest submarkets in office continue to be Uptown and North I-25. However, in the Rio Rancho submarket, a large win for the en- tire State of New Mexico was the an- nouncement that Safelite AutoGlass would open a call center. Safelite AutoGlass leased a 94,000-square- foot building that formerly housed a Sprint call center at 4300 Sprint Blvd. The new call center will bring 900 jobs to Rio Rancho. Healthcare-relat- ed offices and call centers will most likely continue to drive demand in the office market. As functional obsolescence has continued to stress properties, we have seen more and more redevelop- ment plays in the Albuquerque office market. The upper most floor of 2424 Louisiana Blvd., a 70,000-square-foot office building, is being converted to residential condominiums. This building is the first of its kind in the Albuquerque market, though there are other mixed-use projects in the works in Downtown Albuquerque. Aside from modern finishes, many occupiers are looking to purchase buildings to increase both space and financial efficiencies. Given the con- tinued stable and, in some cases, de- pressed prices per square foot, low interest rates and favorable terms are being offered from various lend- ing institutions and the options for purchasing are positive. The supply of newer office product is yielding more rehabilitation and/or conver- sion projects. Stabilized office portfo- lios with credit-worthy tenants are in demand amongst investors. Keith Bandoni Senior Vice President and Principal, Colliers International Safelite AutoGlass leased a 94,000-square-foot building that formerly housed a Sprint call center. The new Safelite call center will bring 900 jobs to Rio Rancho. The Presidio at Northeast Heights resides in one of the most sought-after neighborhoods in New Mexico. It changed hands in 2016. 0% 2% 4% 6% 8% 10% $0 $20 $40 $60 $80 $100 2011 2012 2013 2014 2015 2016 Average Cap Rate Median Price per Unit (thousands) Price per Unit Cap Rate Albuquerque Price and Cap Rate Trends Source: Colliers International 2017