Good News! There are finally some signs of life in the different disciplines of real estate – a good sign we haven’t seen in some areas for almost a decade!
Retail leads the way. Single-tenant net leased retail remains the “go-to” property for stabilized investors who are willing to pay high $/SF and accept lower returns. Walgreen’s and McDonalds are the products of choice for those looking for a flat and stable return and financing is readily available. There are options available in Albuquerque, but most investors will need to look nationally for a wider and more diverse selection. Multi-tenant retail also remains in strong demand due to the NNN nature of most of these leases. Demand for single and multi-tenant retail property has remained high throughout the country over the past decade. The most recent vacancy rate for multi-tenant retail properties over 10,000 SF in metro Albuquerque was 10.6%, down 20 bps from a year ago.
Industrial – This product type remains popular with many investors; and, demand has also increased over the past 5 years, boasting an Albuquerque vacancy rate of only 6.2%, down 119 bps from a year ago. Much industrial product is leased on a NNN basis which is always attractive to investors. There has been a steady demand for lease space and no speculative space has been delivered in the last six quarters.
Office – The office market has been the last to finally see any type of recovery, due to the fact that it is directly tied to job growth, or in Albuquerque’s case, the lack thereof. The employment picture for Albuquerque has recently experience modest improvement, however, the office market saw negative net absorption for the third consecutive quarter. Good news can be found in the Class A and B properties which are attracting tenants with aggressive competitive rates, with tenants leaving the older, more obsolete office properties in order to raise their professional profile.
Cap rates will vary with product type, vacancy, tenancy and term of the leases. Generally, single-tenant credit leased retail will be at the lower end of the cap rate range and at the high-end of the price per SF range. High-quality long-term leases trade in the 4.5-6.5% range, due to demand and buyer competition. Industrial product will also vary depending on the construction, ceiling height, free span, tenant and term. We have seen this product trade at cap rates of 7.5% to 10%. Multi-tenant Office product is finally grabbing some investor interest again; and, cap rates for this product type will also vary according the above parameters with a range of anticipated cap rates between 8.25% (for Class A) and 10.0%+ for any occupancy-challenged lower-quality properties.