Multifamily Construction Active in Albuquerque, but Vacancies Inch Lower
Operating conditions in the Albuquerque multifamily market performed well during the second quarter, as the vacancy rate improved while rents inched higher. Supported by an increase in renter demand, vacancy declined for the first time in two years during the second quarter. Apartments recorded net move-ins for 170 units in the last three months, after slight levels from negative absorption in the preceding quarter. Improved renter demand and vacancy conditions led to rent growth during the second quarter, as asking rents topped $1,300 per month for the first time. Annual rent gains are currently tracking the steadier average pace of growth recorded from 2010 to 2020, before a period of more volatile rent patterns of recent years.
Transaction volume in the Albuquerque multifamily investment market has been limited to this point in the year. Although total sales through the first six months of 2024 have more than doubled the historically low levels recorded in the same period of last year, transaction volume to this point in the year is roughly half of the region’s average since 2015. In the sales that have occurred to this point in 2024, 75 percent of these assets had been previously acquired during the past 5 years. Outside of a few newer assets, most properties that have changed hands thus far in 2024 are 1970s- or 1980s-vintage scattered throughout Albuquerque. These properties have also accounted for the majority of sales in the preceding five years. In transactions where pricing was available, the median price to this point in the year is $161,000 per unit, 6 percent above levels from last year.
Looking ahead
This year will mark a second consecutive year of heightened multifamily inventory growth in Albuquerque, following a stretch from 2019-2022 where only a handful of properties came online. Multifamily deliveries are forecast to total approximately 1,500 units this year, after more than 1,000 units were delivered in 2023. With about 2,600 units currently under construction, next year will likely mark the conclusion of the region’s recent construction surge. In the near term, these supply-side pressures will likely result in a modest vacancy increase in the second half of this year and through 2025 before conditions stabilize. This follows an extended period of extremely tight conditions, highlighted by a local vacancy that remained below 4 percent for 12 consecutive quarters, and remained below 3 percent for nearly one full year.
Investment conditions in Albuquerque have been fairly cool to this point in 2024, although the number of sales of multifamily properties is ahead of the pace recorded in 2023. Investors will likely continue to monitor the competitive impact of new supply on existing operations, particularly since the Albuquerque region recently recorded a period of a few consecutive years of limited deliveries. As projects successfully lease-up, there is the potential for some momentum to build in the coming quarters. Declines in interest rates should also make it easier for acquisitions to pencil. Cap rates appear to have settled into an acceptable range for buyers and sellers, but an extended period of declining borrowing costs could result in some modest cap rate compression. A return to cap rate levels achieved a few years ago is not expected.
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