ALBUQUERQUE’S OFFICE MARKET BEGINS RECOVERY PROCESS
Albuquerque and its surrounding office market has 14 million square feet of leasable space in buildings with more than 10,000 square feet. Albuquerque has experienced one of its most challenging times over the past 25 years. New Mexico was slow to enter the recession, due in large part to its close relationship with the federal government and its subcontractors. As government spending decreased, New Mexico’s office vacancies increased. Vacancy has held above 18 percent since the third quarter of 2010. It currently sits at 20.9 percent.
A driver of the modest recovery is an increase of office building acquisitions by owner-occupants. Sales activity accounted for nearly two-thirds of the total space absorbed since 2014 – effectively reducing the set of office buildings on the market competing for tenants. Sales and repurposing of office buildings are occurring primarily in Class B and C properties where attractive pricing and financing options have led several would-be, longterm tenants to become property owners themselves.
A key contributor to recent market activity in the Albuquerque MSA has been high employee density operations. These administrative and call centers, which include medical, insurance, technical support and financial services, comprise an excess of a quarter million square feet.
Another driver is the activity surrounding New Mexico’s premium properties. Tenants seek a more efficient use of space to accommodate ever- changing business models as leases roll over. This efficiency often results in a 25 percent reduction in occupied areas. Landlords and their brokerage teams need to plan proactively to retain good tenants, while simultaneously providing good, marketable space.
On the investment side, interest in the Albuquerque metropolitan market for office investments should continue to garner interest for investors seeking to diversify risk and improve returns. Many are acquiring assets in secondary markets where capitalization rates for stabilized investment offerings are generally 100 to 200 basis points higher than those in larger primary markets.
The outlook for Albuquerque’s metropolitan area is showing signs for optimism. The conversations have shifted from New Mexico’s reliance on the government to implementing ways to cultivate from within the state. This includes attracting new innovation and technology industries that can benefit from New Mexico’s nationally recognized institutions, labs and the intellectual capital that resides here.