Investment activity picks up to start 2024 in the Albuquerque multifamily market

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Multifamily property fundamentals in Albuquerque were mixed in the first quarter. After spikes in late 2023 and early 2024, market vacancies have slowly inched higher in recent quarters. Despite the rising vacancy levels, the local economy was strong enough to support steady rent growth. While gains across the area economy are supporting renter demand, developers are delivering projects at a higher rate. During the first quarter, more than 730 units came online, and deliveries in the past six months have outpaced the combined totals recorded from 2017 to 2022. This increase in new inventory is not expected to be a long-term shift in the market, as the pace of multifamily permitting and construction starts has slowed in recent periods.

Despite transaction activity in the Albuquerque multifamily investment market picking up at the start of 2024, overall sales activity has been limited in recent quarters after peaking in 2022. Still, a few properties have traded to start the year, with Class B assets accounting for the majority of transactions. Last year, the transaction mix was a bit more varied, with an even distribution of Class B and Class C properties changing hands. With fewer older assets trading to this point in the year, pricing has gained momentum. In transactions where information was available, the median price in 2024 has reached $161,000 per unit, up 6% from 2023. Cap rates averaged 6.5% in the last three months.

Looking ahead

Supply growth in the Albuquerque multifamily market is expected to remain elevated through the rest of 2024, but the pace of multifamily deliveries should slow beginning in 2025. This pattern occurs with some regularity in Albuquerque, where deliveries have averaged about 400 units per year during the past decade, including some years where only one or two significant projects come online. In the near term, the vacancy rate should inch higher and will likely peak in the next few quarters. Over a more extended outlook, conditions should improve, with a capital investment among some of the region’s largest economic engines supporting demand growth. Rents are forecast to record above-average gains this year, and stronger growth could be achieved as supply-side pressures ease.

After a stronger start to the year, investment activity in Albuquerque will likely sustain a steady pace. This would result in total transactions in 2024 surpassing sales counts from 2023. Steady operating conditions should support the investment market in Albuquerque, particularly when compared to the volatility being recorded in higher-growth parts of the country. While Class B and Class C assets should continue to make up most sales, there may be an uptick in sales for top-tier properties in the coming years as new projects are delivered and leased-up. With financing costs likely to remain elevated throughout the remainder of this year, secondary markets such as Albuquerque where cap rates are generally a bit higher could attract greater investor interest.

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