WESTERN SNAPSHOT, MAY 2008

Las Cruces, New Mexico, Retail Market

McMillan

The retail market in Las Cruces is alive and well. New Mexico’s second largest and southern-most metro-area continues to post impressive retail growth. Amidst national economic sluggishness and sector-specific performance impacted by a global credit crisis, retail activity in Las Cruces remains strong as reflected in data for employment, gross receipts and retail trade-oriented construction.

Las Cruces spent the majority of the ‘90s on the Census Bureau’s list of “Top Ten Fastest Growing MSAs” in the country. Located at the crossroads of interstates 10 and 25, with El Paso 40 miles to the south and Albuquerque 220 miles to the north, Las Cruces is located in the middle of the southern “ice/snow free” transportation corridor. No longer under the radar, Las Cruces has received high rankings in a wide variety of national publications, including “Best small metro area for business and careers“ by the Forbes-Milken Institute from 2002 through 2006. These consecutive high rankings reinforce the perception of the area’s strong potential for business location and expansion — and the retail businesses that follow that growth.

The thriving economy of Southern New Mexico is driven by the diversified industries serving the area: New Mexico State University, border-oriented manufacturing and trade, value-added agriculture and aerospace-related high technology, including NASA and the Southwest Regional Spaceport. White Sands Missile Range, located 30 minutes from the city center, will benefit from the Troop Relocation Plan that could swell the labor force by 77 percent, from its approximately 6,600 employees today to as many as 11,300 in just 5 years.

Another economic driver for this area is reflected in changing demographics: upper-income people from a highly educated background are moving into Las Cruces because of the quality of life and cost of living. This includes retirees who have cashed out of housing markets when gains were to be realized. Money Magazine named Las Cruces as one of the “Best Places to Retire” in May 2004. AARP, through the largest circulated magazine in the world, made similarly glowing comments in an article entitled “Dream Towns” in 2006.

The Las Cruces metro area posted double-digit gains in the most recent year-over-year comparison of total gross receipts and the widely watched retail trade figures — up 10 percent and 12 percent, respectively, at year-end 2007. These strengths have sustained high occupancy, driven impressive rent increases and resulted in strong interest from national retailers, which continue to enter or expand their presence in this market. Two large city annexations in 2007 will provide space and infrastructure for 10,000 new homes and additional retail hard-corner opportunities to serve the burgeoning population base.

Alameda Property Group recently announced the sale of 25 acres in the rapidly expanding East Mesa area to Wal-Mart (third store for the city), which will anchor a 900,000-square-foot commercial development called Rinconada Town Center. Walgreens has pulled simultaneous building permits for their fourth and fifth city facilities. While the entry of national players into the market makes headlines, the expansion activity of existing retailers speaks most directly to the health of the Las Cruces retail climate.

Our most recent neighborhood/community center survey saw a drop in vacancy to 5.5 percent coupled with a 6.4 percent increase in average asking lease rates with a range from $15 to $22 per square foot, NNN. Comparatively, national trends have seen retail vacancy rates creep up to between 7 percent and 8 percent in the last 6 months, according to recent data from NAI Global. David Solomon, president and CEO of ReStore, NAI Global’s retail division, expects the vacancy rate could hit 10 percent by the end of the year.

By definition, Las Cruces is considered a small, second-tier or tertiary market. But Las Cruces is also a well-diversified, stable, ever-strengthening economy yielding above-average growth in employment, gross receipt revenues and returns on real property assets. Las Cruces has the potential to continue growing through the end of this decade.

Randy McMillan is a principal at NAI 1st Valley in Las Cruces. Company COO Annette Hicks and Pierre Autrey, NAI 1st Valley Market Research, also contributed to this report.

Sources: Greater Las Cruces Chamber of Commerce, Mesilla Valley Economic Development Alliance, The Las Cruces Bulletin and Las Cruces Sun News.

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