Society of Industrial and Office REALTORS® 1 Industrial & Update SIOR New Mexico Chapter Office...

Society of Industrial and Office REALTORS®1

Industrial &

Update

SIOR New Mexico Chapter

Office Market

Society of Industrial and Office REALTORS®

SIOR Market Update

SIOR is the leading industrial and office real estate brokerage association.

SIOR confers the SIOR designation to only the most knowledgeable, experienced, ethical, and successful commercial real estate brokerage specialists.

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AGENDA

Overall local Industrial and Office Statistics

Comparison to Regional Markets

Industrial Market Overview - Erick Johnson

Office Market Overview - Debbie Harms

Questions?


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Completion Net Absorption Vacancy Rate

Completion & Net Absorption in sq. ft. (000's) Vacancy Rate

Source: SIOR, CBRE Research, Q3 2014.

INDUSTRIAL VACANCY,NET ABSORPTION & COMPLETIONS

ABQ Industrial market has had positive net absorption over

the last 3 quarters.


INDUSTRIAL GROSS ACTIVITY VS. VACANCY

2007 2008 2009 2010 2011 2012 2013 2014 YTD0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

0%

2%

4%

6%

8%

10%

12%

Gross Activity Vacancy Rate

Gross Activity in sq. ft. (000's) Vacancy Rate

Source: CBRE Research, Q3 2014.


2007 2008 2009 2010 2011 2012 2013 2014 YTD0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Spec Build-to-Suit

Completion in sq. ft. (000's)


1,721 KSF

INDUSTRIAL COMPLETIONS

Over 100,000 SF of new industrial buildings completed

in 2014


INDUSTRIAL MEDIANASKING RENTAL RATES

2007 2008 2009 2010 2011 2012 2013 Q3 2014$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Manuf Office/Whse R&D/Flex Whse/Distribution

Median Asking Lease Rate

Source: CBRE Research, Q3 2014.Manuf$6.49/SF

OfficeWhse

$5.94/SF

R&D/Flex$8.32/SF

WhseDistribution

$5.88/SF


INDUSTRIAL MEDIAN ASKING RENTAL RATES vs. VACANCY

2007 2008 2009 2010 2011 2012 2013 Q3 2014$2

$3

$4

$5

$6

$7

$8

0%

2%

4%

6%

8%

10%

12%

Median Asking Lease Rate Vacancy Rate


Source: CBRE Research, Q3 2014.Overall Median Asking Lease Rate - $6.50/SF


OFFICE VACANCY,NET ABSORPTION & COMPLETIONS

2007 2008 2009 2010 2011 2012 2013 2014 YTD(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

500,000

600,000

4%

9%

14%

19%

24%


Vacancy Rate



OFFICE VACANCY,SIGNIFICANT MOVEMENTS

Molina & BCBS


2007 2008 2009 2010 2011 2012 2013 2014 YTD0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0%

4%

8%

12%

16%

20%

24%

Gross Leasing Vacancy Rate

Gross Leasing in sq. ft. (000's) Vacancy Rate


OFFICE GROSS LEASING VS. VACANCY RATE

Office Vacancy Rate is just below 22%


2007 2008 2009 2010 2011 2012 2013 Q3 2014$10

$12

$14

$16

$18

$20

$22

$24

Class A Class B Class C OverallSource: CBRE Research, Q3 2014.


Trendline (Overall)

OFFICE MEDIAN ASKING LEASE RATE

Class A$22.50/SF

Class B$17.98/SF

Class C$13.55/SF


OFFICE MEDIAN ASKING LEASE RATE VS. VACANCY RATE

2007 2008 2009 2010 2011 2012 2013 Q3 2014$10

$11

$12

$13

$14

$15

$16

$17

$18

8%

10%

12%

14%

16%

18%

20%

22%

24%

Overall Median Asking Rates Vacancy RatesSource: CBRE Research, Q3 2014.


Overall Median Asking Lease Rate - $15.50/SF


Industrial Overview

Erick Johnson, SIORJohnson Commercial Real Estate


Albuquerque Industrial Market Status of the market User Requirements Top Transactions Why these transactions

occurred What can be done to meet

user’s requirements? Where is the market headed?

AgendaIndustrial Overview


Status of the Albuquerque Industrial Market

Lack of functional inventory for spaces 10,000 SF & above

Sporadic demand Improvement costs often unfeasible New construction is not feasible until lease

rates increase Is it a Landlord or a Tenant market?

(Perception vs. Reality) & (Class A vs. Classes B-C)

Status of the MarketIndustrial Overview


User Requirements Turn-Key Improvements Short Delivery Time Frame Size Flexibility – Tenants want the potential

to expand Fire Suppression Systems Less office build-out Trailer Parking Higher clear heights/ceiling clearances

User RequirementsIndustrial Overview


Why Higher CeilingHeights Industrial Overview


Largest Industrial TransactionsQ4 2013 – Q3 2014

Top TransactionsFor 2014 Industrial Overview


SOUTH I-25

2

NORTH I-25

1

NORTH VALLEY

2WEST MESA

2MESA DEL

SOL

1RIO

RANCHO

1

Top TransactionFor 2014 Industrial Overview


123 Montaño Rd NWIndustrial Overview


PURPOSE: Consolidate two facilities into one

BENEFITS TO SOUTHERN WINE & SPIRITS: Adequate ceiling clearance (25’) Abundant Trailer parking (3.8 per dock door) Landlord’s willingness to make improvements Limited existing alternatives while build-to-suit options were

much more expensive

Relocation from 140,000± SF to 163,475± SF

Southern Wine and Spirits Transaction Industrial Overview


3980 Prince St. SEIndustrial Overview


PURPOSE: Consolidated two facilities into one

BENEFITS TO ADMIRAL BEVERAGE: Preferred to own No existing space of adequate size available for sale Initially considered rail service as a requirement, but

found it was not essential

Relocation from 115,000± SF to 219,000 SF

Admiral BeverageTransaction Industrial Overview


540 Gallatin Pl NWIndustrial Overview


PURPOSE: Relocated from 50 year old facility to 10 year old facility

BENEFITS TO PEPSI: Increase ceiling clearance from 18’ to 28’ Landlord’s willingness to provide turn-key improvements Landlord’s ability & willingness to provide trailer parking

(1.3 per dock door)

Relocation from 37,500± SFto 56,893± SF

Pepsi TransactionIndustrial Overview


Reduction in building area resulted in a

reduction of the floor to land area ratio (FAR)

from 36% to 27%.


Willingness to remove functional obsolescence Remove building additions, out buildings,

etc. that are no longer functional Remove excess office area and sensibly

configure remaining space or leave as open office

Adapt dock areas to better accommodate full size tractor-trailers (saw toothed or angled docks, recessed docks, etc.)

How Do We MeetDemand? Industrial Overview


Angled Docks

Recessed Docks

How do we meetDemand? Industrial Overview


Flexibility in suite sizes Provide turn-key improvements Separating the functionality of different building

areas and relate applicable lease rates to each area

Don’t just hope the ideal user shows up at your door; do what’s possible to meet demand.

Hire an SIOR that knows the market and the competing properties

Industrial Overview

How Do We MeetDemand?


Functional supply will continue to dwindle as there will be minimal new construction

Lease rates have stabilized but need to increase 25 - 30% before we see new construction

Building owners can better compete by removing functional obsolescence

National tenants may drop priority level of ABQ requirement due to lack of inventory

What’s in store for the industrial market?

2015 ForecastIndustrial Overview


34

Office Market OverviewDebbie Harms, SIORNAI/Maestas & Ward Commercial Real Estate


2007 2008 2009 2010 2011 2012 2013 2014 YTD(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

500,000

600,000

4%

9%

14%

19%

24%


Vacancy Rate


Net Absorption, Vacancy & Completions Office Overview


2007 2008 2009 2010 2011 2012 2013 2014 YTD0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0%

4%

8%

12%

16%

20%

24%

Gross Leasing Vacancy Rate

Gross Leasing in sq. ft. (000's) Vacancy Rate


Gross Leasing vs. VacancyOffice Overview


2007 2008 2009 2010 2011 2012 2013 Q3 2014$10

$12

$14

$16

$18

$20

$22

$24

Class A Class B Class C OverallSource: CBRE Research, Q3 2014.


Trendline (Overall)

Median Asking LeaseRate Office Overview


2007 2008 2009 2010 2011 2012 2013 Q3 2014$20.50

$21.00

$21.50

$22.00

$22.50

$23.00

0%

5%

10%

15%

20%

25%




Class A – Lease vs.Vacancy Rate Office Overview


Class A – Lease vs.Vacancy Rate Office Overview

Asking Lease Rate stabilized at $22.50/SF

Vacancy Rate drops from 22% - 13% when

Downtown omitted


2007 2008 2009 2010 2011 2012 2013 Q3 2014$15.00

$15.50

$16.00

$16.50

$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

0%

5%

10%

15%

20%

25%




Class B – Lease vs.Vacancy Rate Office Overview


2007 2008 2009 2010 2011 2012 2013 Q3 2014$11.00

$11.50

$12.00

$12.50

$13.00

$13.50

$14.00

$14.50

$15.00

$15.50

$16.00

0%

5%

10%

15%

20%

25%


Asking Lease Rate Vacancy Rate


Class C – Lease vs.Vacancy Rate Office Overview


4400 Masthead NE Total building SF:164,545± SF

Transaction: 68,000± SF

Tenant: GAP, Inc.

This building was formerly occupied by the Department of the Interior.

Added to the Class A Office inventory in 2014.

Class ATop Transactions Office Overview


4411 The 25 Way NE Total building SF:

220,000± SF


Tenant: Blue Cross, Blue Shield

After having this space vacant for more than a year, this transaction brought the occupancy at this project to 100%.

Class BTop Transactions Office Overview


4041 Jefferson Plaza NE Total building SF:

72,000± SF


Tenant: Canon Information Technology Services

The former occupant, an engineering firm downsized to 8,000 SF in a different building, without reducing employee count.



2130 Eubank NE 23,243± SF

Buyer: University of New Mexico

This former bank building will now be utilized as a UNMH family practice clinic.



8650 Alameda NE 21,177± SF

Tenant: New Mexico International Charter School

Newly constructed in 2009, this building was completed and occupied in 2014.



2000 Randolph Road SE 27,598± SF

Tenant: Cien Aguas Charter School

This property has been repurposed from office to educational.

Class CTop Transactions Office Overview


707 Broadway Blvd NE 20,320± SF

Tenant: Open Skies Behavioral Health

This 71,562 SF building has seen a change in ownership and extensive improvements.

Class CTop Transactions Office Overview


Class A Office Space

Existing Class A Office space is mostly occupied, at a good rate

If not occupied, it is a location problem

Construction of new Class A office space continues to be hindered by cost perceptions.

What does it all mean?Office Overview

LOCATIONLOCATIONLOCATION


Class B Office Space

Existing Class B office space is mostly occupied, at a good rate, with stable tenants

If not occupied, it is a location problem, a quality problem, an improvement cost problem or a financing problem.

Asking Rates will not justify the construction of any new Class B office space



Class C Office Space

Existing Class C Office space has the highest vacancy rate.

A large portion of vacant Class C Office Space is functionally obsolete or locationally challenged

Innovative change in the use of existing Class C space is the most likely way to lease the space



2015 ForecastOffice Overview

Office users will continue to migrate to quality office buildings.

Vacancy in unkempt, unclean property will continue to rise.

Our market will remain a “Tenant’s Market”

There may be justification for new construction due to tenant acceptance of increased rates.


Industrial &

Update

SIOR New Mexico Chapter

Office Market

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