Commercial Real Estate and Office Space Market in New Mexico
New Mexico's solid economy is driven by a profitable oil and gas sector (which is among the largest in the United States), a booming visitor economy, and increased government spending (1). These factors have clearly had a positive impact on the commercial property market across the state, but particularly in New Mexico's largest cities, Albuquerque and Santa Fe. Some real estate experts have recently pointed out the notorious improvement experienced by the housing market, claiming that the commercial sector is well on its way to following suit (2).
Office Space Market
According to CBRE, the office property market in New Mexico is showing signs of constriction, although the experts agree that this is a temporary trend that should resolve on its own in the short term. At 22.5 per cent, vacancy rates for office properties in New Mexico are above the national average, but they are within a healthy range when compared to other regional markets in the country's Southwest. Average direct asking rates are in the region of $15.25 / sq ft, slightly lower that during 2014. However, rental values for Class A office space have remained stable and are expected to stay that way for the remainder of the year (3).
In Albuquerque, New Mexico's largest city, the office market has shadowed the trends mentioned above, with rental values decreasing by 0.9 percentage points. Asking rents for Class A space average $20.64 / sq ft / year and $14.87 for Class B properties. Rates are somewhat higher in districts to the north of the I-25, where they average $22.50. With regards to Class B offices, the highest priced properties are clustered around Rio Rancho, Uptown, North I-25, and West Mesa. Average vacancy rates for all property types are just above 20 per cent, and they are down to 12.3 per cent for Class A office space. Market analysts are confident that the market will become stronger given the positive net absorption rates seen during the first half of 2015. The supply of office space is set to decrease in areas like Far Northeast Heights (where vacancy rates are under 11 per cent) and Rio Rancho (5.7 per cent). The forecast for the Albuquerque office market is marked by a "trading spaces" trend, whereby tenants are opting to move to new premises instead of renewing their existing leases (4).
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Retail and Industrial Space Markets
The New Mexico retail property market continues its upward trend and shows an improvement in all key market indicators. Vacancy rates for retail properties are down to 10.8 per cent in Albuquerque, where more than 216,000 square feet of retail space are under construction (5). Other recent surveys point at the increasing scarcity of anchor space in the city center and at how this limited supply of suitable retail space is prompting large redevelopment projects in non-city core areas, like Rio Rancho, the South Valley, and West Mesa. Vacancy rates for neighborhood malls in Albuquerque stand at 10 per cent, whereas they average 8.2 per cent for properties in strip malls and 6.3 per cent for all retail properties combined. With regards to rental values, the most important year-on-year changes took place in those being asked for neighborhood mall properties, where average asking rates increased by 4.2 per cent between 2014 and 2015, reaching values of $14.81 / sq ft. Market analysts suggest that this positive environment has been largely caused by a surge in the number of non-traditional retail space occupiers choosing to sign leases for this type of space (for example dental or medical companies signing leases in retail centers) (6).
Demand for industrial space is particularly strong in West Mesa and to the north of the I-25. Average asking rents in Albuquerque are $6.70 for general industrial space and $5.12 for warehouse and distribution properties. Vacancy rates are higher-than-average in the university, downtown, and South Valley areas (7).
Tax Breaks, Business Incentives and Support
The New Mexico Economic Development Department has implemented a series of competitive tax credit and business support schemes that have proven to be very effective at improving the state's competitiveness at regional and national level. Assistance and tax credits are available in the form of industry-specific programs, with a special focus on industry sectors like advanced manufacturing, aerospace and aviation, back office and technical support, technology, digital media, energy and natural resources, logistics, distribution, and transportation, food production, and value added agriculture (8). State-wide tax credits are available to a wide range of business activities, such as manufacturing, research and development, telemarketing, aerospace, film production, distilling and brewing, renewable energy production, and technology (9).
More information on each one of these schemes can be obtained at http://www.tax.newmexico.gov/Tax-Professionals/general-industry-incentive-tax-credits.aspx.
(4) http://www.colliers.com/-/media/files/marketresearch/unitedstates/markets/new mexico/2015 q2/2015 q2 nm office web.pdf
(6) http://www.colliers.com/-/media/files/marketresearch/unitedstates/markets/new mexico/2015 q2/2015 q2 nm retail web 1.pdf
(7) http://www.colliers.com/-/media/files/marketresearch/unitedstates/markets/new mexico/2015 q2/2015 q2 nm industrial web.pdf