Home New mexico real estate A new phase of industrial development?

A new phase of industrial development?

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Copyright © 2021 Albuquerque Journal

For the first time in years, Albuquerque developers have started building large-scale industrial spaces without tenants lined up, which may mean relief is on the horizon for the notoriously tight industrial real estate market of the city.

“It was ultimately pushed overboard… in terms of getting developers to pull the trigger on projects without necessarily having leases in place,” said Riley McKee, senior advisor for NAI SunVista in Albuquerque.

SunVista’s latest quarterly industrial market report, released at the end of October, shows that the industrial vacancy rate has fallen more than ever, to 1.39%, after years of decline.

However, the report also notes that four large projects, totaling approximately 500,000 square feet, are in various stages of construction, design and planning.

Builders are working on a new warehouse at 7200 Bluewater NW in Albuquerque. The project is one of four under construction or in planning. These new projects should provide some relief from the city’s record industrial vacancy rate. (Adolphe Pierre-louis / newspaper)

Erick Johnson, managing broker at Johnson Commercial Real Estate, said a warehouse, a 150,000 square foot facility located at 7200 Bluewater NW, is currently under construction, and more are under construction.

Other developers, including Albuquerque-based Titan Development, declined to comment on details of ongoing projects before construction began. However, McKee said the new projects are largely concentrated on the city’s West Side, near Interstate 40.

Additional projects, totaling 665,000 square feet, have been proposed without a schedule at this time, according to the report.

Eric Johnson

McKee said new developments underway, which would almost double the amount of industrial space available for rent, would be a welcome relief for bulk distributors and large manufacturers.

However, builders venturing into the speculative market face their own challenges, from labor shortages to high commodity prices, which threaten to delay or derail at least one of so many projects. expected.

“We have to understand this,” said Scott Goodman, vice president of Goodman Realty Group. “… Otherwise, no new industrial (space) will be built for a very long time.” “

Current challenges

New projects are important in a city that historically hasn’t seen a lot of industrial buildings built to spec or without a tenant lined up.

“Our market has historically not been a very speculative market,” Johnson said.

Bill Robertson, senior vice president and director of Colliers International’s Albuquerque office, said Albuquerque had not seen a large-scale industrial property built without a tenant lined up since before the Great Recession.

As a result, the industrial vacancy rate has tended to decline in Albuquerque for years as growing businesses use the city’s existing supply of industrial space without much new development in the pipeline.

“It’s a supply and demand issue: a lot of demand, no supply,” said Robertson.

Riley McKee, senior advisor for NAI SunVista in Albuquerque, in his office on October 26.

Robertson said two recent changes in Albuquerque have exacerbated the shortage. First, the COVID-19 pandemic and associated restrictions have caused stores to close, prompting a number of retailers to switch to an e-commerce model. Robertson said he expects the trend to continue even if the pandemic eases, noting that the industry still has room to grow in Albuquerque and across the country.

Second, Robertson said other markets that have legalized recreational cannabis have seen industrial vacancy rates plummet as growers seek space to grow and extract cannabis.

“They are looking and there is nothing available,” he said.

As a result, Albuquerque’s already low industrial vacancy rate has plummeted over the past 12 months. SunVista’s report notes that 543,363 square feet of industrial space was available in the third quarter of this year, down 49% from the same quarter in 2020, itself a record high at the time. Robertson said the space still available is generally older and not suitable for modern manufacturers and distributors.

Local and state economic development leaders have noted that the lack of space leaves Albuquerque at a competitive disadvantage when bidding on projects. A report commissioned by the state’s Economic Development Department urges the state to pursue industries that need warehouse space, including high-tech manufacturing, but recognizes that the lack of ready-made industrial sites starting is a weakness.

“Despite the abundance of land in the state, site breeders struggled to find land suitable for light manufacturing and industrial activity,” the report said. “Specifically, the lack of facilities, infrastructure, and construction specifications that manufacturers want has led some out-of-state manufacturers to decide not to relocate to New Mexico.”

Shocking costs

Even with ongoing projects, developers struggle to bring them to fruition. One of the largest developments planned, an approximately 400,000 square foot complex developed by the Goodman Realty Group, is set to be scaled down, Goodman confirmed Wednesday.

Earlier this year, the company announced plans for a three-building industrial complex at the corner of Central Avenue and 118th Street, totaling 400,000 square feet. However, Goodman said the company is looking to “assess the engineering value” of aspects of the project, which could include reducing the building’s footprint.

“We’re trying to figure out how to make it work, because we need it to make it work,” he said.

The old ITZ building at 4595 San Mateo NE is being redeveloped by the Goodman Realty Group into an industrial warehouse. A recent quarterly report from NAI SunVista lists the space as the largest unoccupied industrial space in Albuquerque. (Adolphe Pierre-louis / newspaper)

Goodman cited the high cost of materials and the shortage of labor as the reasons for the delay. He noted that concrete prices, which have skyrocketed this year due to supply chain challenges and strong construction demand, have come back higher than expected.

Several brokers noted that contractors were busy with custom construction projects for Amazon, Facebook and other large companies. Goodman said labor shortages are also a contributing factor, meaning contractors have less ability to take on new projects.

“They are just smacked with what they have,” he said.

Goodman said developers from other states told him they were surprised at how more expensive construction in New Mexico could be, which Goodman says is due to New Mexico’s tax structure. and the state’s relatively small industrial construction sector.

“Everyone is shocked at how much it costs to do construction here,” he said.

As a result, Goodman said his team will be looking at all aspects of the West Side project, considering removing some of the wharf doors or having fewer buildings.

“As a developer you always run into obstacles and you just need to figure out how to overcome them,” he said.

The future of the industrialist?

Despite the challenges, brokers remain encouraged that rental rates have eventually risen to the point that it pays off for builders to rely on specifications going forward.

The SunVista report shows rental rates topped $ 8 per square foot earlier this year and currently sit at $ 8.70. McKee said this recent increase puts leases in a range where more developers would consider building without a lined up tenant.

“Homeowners and developers are confident that they can close the deal before the building is finished, simply because of the energy available in the market,” he said.

McKee said most of the city’s new developments are concentrated on the western outskirts of the city, near the I-40 freeway, which provides easy access to transportation to other markets. The area has been popular with newcomers to the city, with Tempur-Pedic and Amazon each establishing locations near the east-west highway.

“This is where a lot of future growth lies. … It really is the only place we can grow up, ”McKee said.

McKee added that he hopes the planned developments will help the city meet the demand for space, but acknowledged that most of what is being built is larger, aimed at bulk distributors. Even with new projects underway, small distributors and manufacturers may not find the space to suit them. McKee said he hopes the rates will be high enough to make smaller spaces achievable for developers over the next few years. “It’s just another segment of the market that is currently untapped,” he said.


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