Albuquerque Apartment Market: Rising Vacancies and Supply Challenges

Demand for Albuquerque apartments has rebounded, but the market faces a significant pipeline that has pushed vacancies to record levels. Over the past year, roughly 2,100 units were delivered, with another 1,500 units in the pipeline. This expansion will increase Albuquerque’s inventory by 2.7% once these units come online.

Vacancy rates have surged to 9.0%, the highest on record for the market. The bulk of new construction is concentrated in the luxury segment, with over 80% of current projects being 4 & 5 Star properties. This intense competition is eroding property managers' ability to raise rents, resulting in underperforming rent growth compared to the more affordable 1, 2, and 3-Star segments. Despite the hefty construction pipeline, market-level rents have increased by 1.9% in the past year, outperforming the national benchmark of 0.9%. However, the luxury market has experienced the most significant slowdown in rent growth, at just 0.5% annually.

Albuquerque emerged as a top-performing market for smaller multifamily investors post-pandemic. However, New Mexico's non-disclosure status can obscure the investment landscape. CoStar's research reveals that investors have pulled back in Albuquerque's apartment market, likely due to stricter lending standards and high debt costs.

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Renters who qualify for high-end apartments are typically better positioned to absorb increasing housing costs, driving demand in the broader market. The luxury segment recorded an annual net absorption of 580 units, while the 1 & 2 Star category saw a contraction of -88 units. This segment will feel the impact of the extensive construction pipeline most acutely.

Developers have responded to strong multifamily fundamentals at the height of the pandemic, resulting in 1,500 units in the pipeline as of Q2 2024, expanding the market's inventory by 2.7%. Historically, Albuquerque has seen minimal apartment construction, averaging 400 units annually over the past decade.

East Albuquerque has been particularly active, with 311 units delivered in the past year. The submarket includes vibrant neighborhoods like Uptown and Nob Hill, extending to the Sandia Mountains' foothills.

Deal velocity has slowed, with disclosed sales volume amounting to $30.8 million in the past year, lagging behind the five-year annual average of $229 million. Elevated interest rates have kept debt costs high, making investments less attractive. Cooling rent growth has also dampened investor appetite, as they can no longer rely on strong rental performances to offset rising interest rates.

In the largest disclosed sale in the past year, Via Tijeras, a 128-unit property in the Singing Arrow Submarket, sold for $14.2 million, or $110,938 per unit. The 1987-built asset was 92% leased at the time of sale in July, with a 4.76% Cap Rate.

Albuquerque's apartment market faces a challenging landscape with rising vacancies and significant new supply. While demand has shown resilience, the extensive construction pipeline and economic pressures will require careful navigation by investors and property managers.

Stay ahead of market trends and make informed investment decisions. Visit the PGR Group website for detailed insights, expert analysis, and the latest updates on the Albuquerque apartment market.