The office market has experienced a notable shift as of the third quarter of 2023. Across the nation, there has been an upward trend in vacancy rates, with the U.S. seeing an increase to 16.1%, a significant rise from the 12% vacancy reported at the end of 2019.
In Albuquerque, the office market has remained relatively stable in terms of direct vacancy rates, holding at 11.94%, unchanged from the end of 2019. However, the market has experienced a dramatic rise in the amount of sublease space available, now exceeding half a million square feet — an increase that quintuples the sublease figure from 2019 and contributes to a total office availability rate of 14.9%.
Shadow office space, while harder to quantify, has become a key player in the market dynamics, representing an additional but underreported supply of office space. In Albuquerque, shadow space is estimated to be around 840,000 square feet, or approximately 5% of the total office inventory. When considering shadow space, the unoccupied office space in the city could exceed 20%.
The investment climate in the office market has also cooled. Nationally, there has been a 57% decrease in office sales during the first nine months of 2023, marking the most significant downturn since 2009. Albuquerque has mirrored this trend, with a steep decline in office sales volume, pointing to a substantial market contraction.
This slowdown in investment activity has been attributed to a mismatch in buyer and seller expectations and a noticeable caution among lenders when considering the office sector. Despite the broader market downturn, owners/users have been the most active in acquiring office properties in Albuquerque, taking advantage of relatively more favorable financing options.
Overall, the office market is undergoing a period of adjustment, with increased vacancy rates and a pullback in investment activity. The interplay of visible market listings and shadow space is contributing to a more complex environment that stakeholders will need to navigate with careful consideration.
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