“Job losses continue to batter the Albuquerque market and drive up office vacancy rates,” the New Mexico Business Weekly reported in July. Adding to the vacancy are current and pending tenant evacuations and consolidations. Reis’ calculations on vacancy, while not identical to those cited by the Weekly, suggest a similar dynamic—a market strained by weak demand and little corporate expansion. Accordingly, negative net absorption of 990,000 square feet over the five-year span 2006-2010 accompanied by 930,000 square feet of new supply (a supply-demand gap of nearly 2 million square feet) has found scarce relief to date. Net absorption over the first half of 2012, with no new space delivered, was positive 40,000 square feet. Vacancy ended the quarter at 15.9%, unchanged from the quarter before and, despite small fluctuations, essentially flat over the past two years. Rent growth has been flat—at best—as well. At $16.13 psf and $12.94 psf, second quarter asking and effective averages were essentially unchanged for the quarter alone and were up 0.3% and 0.5% year-to-date following losses of 0.7% and 0.3% last year.
A new test for the market, meanwhile, may be on the way. As reported by the Weekly in September, nearly 90,000 square feet will become available at the three-story, 162,800-square-foot 4400 Masthead Street NE in Journal Center upon the expiration of a lease by the U.S. the Bureau of Indian Affairs (Journal Center was acquired last November: see Transaction Analytics) . “If the vacant space sits for months unleased, it will be another sign of difficulties in the market,” states the report. “If it leases quickly, it will affirm the strength of Journal Center and give hope that the overall market is showing signs of coming off the bottom.” In addition, energy firm PNM Resources, in a relocation to company-owned space, has announced a consolidation that would vacate 212,000 square feet at downtown’s Alvarado Center. Also moving from leased to company-owned space is Presbyterian Healthcare Services. “These effects will ripple through the market the next two years,” notes the Weekly.
While the market waits nervously upon the effects of these events, July and August put forth modestly favorable numbers. Reis counted 18,000 square feet of positive net absorption for the two-month span along with a 20-basis-point decline in the vacancy rate and overall flat rent growth. No competitive general purpose, multi-tenant office space was under construction per the date of this report.
Reis expects net absorption to remain positive overall for the remainder of the year as the vacancy rate slips slightly. Gains at about 1.0% are projected for average rents. Tenant consolidations and evacuations remain an uncertain variable in current equations.