Increase Demand for High-quality Office Buildings
Rental rates continued to rise in the third quarter of 2019, averaging $18.31 per square foot full service. This is the second consecutive quarter with rates averaging above $18.00, indicative of an improving office market. Office lease rates in Albuquerque haven’t maintained an average above $18.00 since 2009. With current market activity, lease rates will likely remain in that range through the fourth quarter. Overall vacancy came down by 5 basis points, from 17.09 percent to 17.04 percent, and availability decreased from 16.96 percent to 16.92 percent with 6,992 square feet absorbed.
Unemployment is at a record low of 3.5 percent nationally, with Albuquerque following close behind the trend with a 4.7 percent unemployment rate. Companies expanding operations and growing are putting in extra effort to hire qualified candidates than in the past, making their office space and environment vital bargaining chips in the negotiating process. The rising costs of tenant improvements and escalating building operating expenses are causes for landlord’s to be more selective about who they lease to. This could partly explain why the cost of tenant improvements are trending higher as well; companies are using the quality of their offices and finishing’s as part of their allure to attract and retain talented employees.
Demand for high-quality office buildings will continue to increase as unemployment rates drop, prompting further increases to asking lease rates. Class C office landlords are being pressed to update their assets or face increasing vacancy.
The IT consulting company, ANM, comprised the largest positive absorption this quarter after occupying the entirety of their new Albuquerque location at 4001 Jefferson St. NE. They vacated their 12,000 square foot offices at 4601 Columbine Ave. NE, tripling their usable space and doubling their operations with 40,000 square feet at their new premises. Centria Healthcare had the second-largest positive absorption with the purchase and successful move-in of their 14,000 square feet location at 5120 Masthead St. NE. A Child’s Voice, currently located at 5201 Venice Ave NE., is expected to occupy 8,600 square feet of space at 2440 Louisiana Blvd. NE at some point during the fourth quarter.
Nusenda Credit Union’s new 60,000 square foot administrative building at 4100 Pan American Fwy. NE completed construction this quarter. They plan to occupy approximately 40,000 square feet of the building addition, moving in during the fourth quarter. There will be 20,000 square feet available for lease by retail or restaurant tenants.
ClearSky Health Acquisitions has leased the last remaining 3,500 square feet of vacancy at Sycamore Plaza, 5600 Wyoming Blvd. NE, removing the building from the market. It is now 100 percent occupied.
The State of New Mexico’s Economic Development Department is opening an Albuquerque satellite office. They’ve leased 3,600 square feet of office space downtown at 500 Marquette Ave. NE after an extensive RFP process, and plan to occupy in 2020. 500 Marquette, one of Albuquerque’s premier Class A office buildings, has seen significant activity between quarters two and three, completing a total of seven transactions and increasing occupancy in the building by 13 percent.
The Indian Pueblo Cultural Center announced two new large projects on the campus, one of which includes a 130,000 square foot Class A office building. Construction is slated to begin mid-2020 and will join the campus of retail, restaurant, and hospitality services. The popular campus is already home to many local and native-owned businesses, and construction on their planned 16,000 square foot innovation center supporting small business entrepreneurs will begin in the fourth quarter.
One Sun Plaza had the biggest negative absorption for Class A office space, with Northrop Grumman vacating at the end of the second quarter after their long-time tenancy there. The aerospace and defense company leased just over 15,000 square feet at Paseo Nuevo, also located in the North I-25 submarket at 8220 San Pedro Dr. NE.
In Santa Fe, nonprofit the Nature Conservancy in New Mexico celebrated its 40th anniversary with the purchase of a 5,000 square foot office in the Santa Fe Railyards. The purchase price was not disclosed. Falling Colors, an analytics tech startup, purchased a 10,000 square foot building at 206 McKenzie St. for their new headquarters. They plan to renovate the space, occupying a portion and offering offices for lease to other tech startups. They’ll vacate their current 6,000 square feet offices at 125 Lincoln Ave. when renovations are completed.
Key Factors in this Quarter
Asking lease rates averaged over $18.00 per square foot full service for the second quarter in a row, for the first time since 2009.
The largest absorption of the quarter was ANM’s occupancy of it’s new 40,000 square foot property at 4001 Jefferson St. NE, doubling their operations.
Nusenda Credit Union’s new 60,000 square foot office facility construction is complete and occupancy will commence during the fourth quarter.
The Indian Pueblo Cultural Center announced that it would construct a 130,000 square foot Class A office property in 2020.