WESTERN SNAPSHOT, APRIL 2010

Albuquerque, N.M., Retail Market

Compared to performance nationally, the Albuquerque retail market is bucking the trend with limited increases in vacancy rates as well as limited reductions in lease rates. Albuquerque’s insulation from what other markets throughout the Southwest, such as Phoenix and Las Vegas, are experiencing is based on the city’s economic engine being driven by a heavy concentration of federal government support, which spins off a stable layer of private enterprise. Secondly, unlike other larger markets, Albuquerque was not burdened with an over inventory of vacant and in-development projects when the economic downturn began. This is not to say that Albuquerque has not experienced its share of real estate woe.

At the end of 2009, Albuquerque’s retail market had a net absorption of 144,000 square feet, which was almost four times higher than 2008. This was primarily due to the decrease in new construction. The vacancy rate rose from 8 percent at the end of 2008 to 10.8 percent a year later. The last two quarters of 2009 reflect decreases from previous quarters and forecasts indicate a vacancy rate of 10 percent at the end of 2010, far below the projected national vacancy rate of 11.7 percent.

Perhaps the most distressing to retail property owners, as with all commercial landlords, will be the reduction of lease rates not only with prospective tenants and renewing tenants, but also with the existing tenant, whose lease still has a number of years remaining, asking to renegotiate. Throughout 2009, retail lease rates fell, across all retail types, anywhere from 15 to 20 percent. Only in fourth quarter 2009 did Albuquerque start to see the beginning of stabilization in lease rates. Strip and neighborhood centers showed level or slight increases in lease rates whereas larger community centers tracked slightly downward. Available space is declining, and deals are being made, which will cause lease rates to continue on their current course.

The combination of vacancy rates and lower lease rates has created an environment of opportunity for retailers looking for better locations or to expand into additional space. For example, Ultimate Electronics relocated in fourth quarter 2009 from a 34,000-square-foot space to a former 37,000-square-foot Linens ‘n Things, achieving a much higher profile along Interstate 40, better access and a far superior tenant mix. Construction is underway for Kohl’s to occupy a former Mervyn’s in the super-regional Coronado Center. Other retailers taking advantage of expansion opportunities include Trader Joe’s at ABQ Uptown, Home Life Furnishings at a new, high-profile Cottonwood submarket location and Ross Dress for Less at a former Albertsons grocery store. New opportunities in 2010 include the closing of a number of national video stores in prominent locations. All the while, CVS/pharmacy and Walgreens continue their march of continued expansion.

In November 2009, Lowe’s Home Improvement Warehouse took advantage of a Sports Authority store closing and existing vacancy to acquire a neighborhood center, Market Center East, with plans to redevelop the center by removing smaller shops and building a new store, which will be located next to a Target.

In Albuquerque, the hottest retail submarkets are Cottonwood, the Far Northeast Heights, Uptown and the university district. Located on the west side of Albuquerque, Cottonwood is the west side’s center for national retail representation. The Far Northeast Heights is located in the highest income demographic of the city, while Uptown is the traditional center of retail activity and still draws on its reputation along with its redevelopment. Having the University of New Mexico as the anchor means an ongoing consistent source of retail growth. Weaker submarkets, such as the South Valley and Northeast Heights, struggle with aging developments that limit interest from new vibrant tenants.

Walt Arnold is a senior advisor and Ed Anlian an advisor at Sperry Van Ness/Walt Arnold Commercial Brokerage in Albuquerque.

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