www.BranchRealty.com
A Branch Realty Publication
Vol. X
2010
Back to Zen in 2010 Downtown's Booming Railyard District Cautious Optimism for Santa Fe’s Commercial Sector Economic Review
CONTENTS Sectors 3
FROM THE EDITOR
4
LABOR MARKET
6
RETAIL MARKET
9
OFFICE MARKET
12
LODGING MARKET
15
APARTMENT MARKET
18
HOUSING MARKET
www.BranchRealty.com
A Branch Realty Publication
Vol. X
2010
Back to Zen in 2010 ON THE COVER
Recreation Equipment Inc at the Railyards
May You Live in Interesting Times...
I
It was Sunday, February 3, 1980. My dad, Michael Branch, was putting the finishing touches on the final weekend of remodeling his new Montezuma Ave offices. Tomorrow was supposed to be the grand opening—the beginning of a new venture—both scary and exciting. Little did he know that at the very same time, New Mexico Penitentiary inmates were also venturing on their own. They had been plotting and planning the take-over of the prison. The inmates were about to grip the nation by murdering and mutilating at least 33 men in what was to become the bloodiest prison riot in American history. The grand opening of Branch Realty seemed an afterthought that Monday morning and little mattered other than a giant shadow cast over the City Different. It was just a few weeks before, that five inmates had escaped the Penitentiary and one was captured just a hundred yards from the Branch residence. Its hard to believe that 30 years has passed since that fateful weekend; 30 years since interest rates were at nearly 20%; 30 years since Iran held 53 Americans hostage; 30 years since the US Olympic Hockey team beat the Russians; 30 years since Esquire Magazine named Santa Fe the new “place to be;” 30 years since Mayor Sam Pick cooked green chile on Good Morning America. Its hard to believe that its been 30 years since Branch Realty, Santa Fe’s oldest commercial advisory, first opened.
What started as a dream of founder Michael Branch has evolved into a firm that provides unique commercial real estate services. These include: development expertise, innovative leasing solutions, diligent property management services, distinct commercial properties, proven asset disposition, and bargain investment opportunities. During the past 30 years, Branch Realty has sold, leased, managed and developed nealry a quarter billion dollars worth of commercial property—in and around the Santa Fe metropolitan area. "After five recessions, we're still here," said Branch, who offers the city its real estate/economic update as it has since 1994. “Small businesses will continue to face a difficult financing environment which will render it more challenging to grow operations and furthermore limits business start-ups,” says Branch. “However, this too shall pass.” Personal income growth in Santa Fe has remained robust even through recession: Over the past months nominal earnings have also been increasing. Jobs and income growth are the most important indicator of the health and predictor of future real estate growth. Last year will go down in the record books as one of the most challenging economic times both nationally and locally. However, with a new decade comes renewed optimism. This is why it must be: Back to Zen, in 2010. Allen Branch is Associate Broker at Branch Realty since 1990 and one of the developers of the Railyards.
Santa Fe labor market —Signs Santa Fe Economy may be Stabilizing
A
fter bottoming out in the first quarter of 2009, the Santa Fe-area job market is showing signs of stability. Area employers added more jobs than they cut for three consecutive months, including 100 more in November, according to data released by the State of New Mexico’s Workforce Solutions,
leading some economic observers to point toward a better 2010. “It won't come back overnight,” said Allen Branch, Urban Planner and Developer. He added that while he has been predicting better times for 2010, his outlook has brightened considerably during the past six weeks.
Some of the sectors seem to be turning around faster due to recent job gains in leisure and hospitality and lower-than-expected job losses in finance and government. At this rate, expect the second quarter to see some real job gains. “I still don't think 2010 will turn out to be a stellar year but I think it will produce job gains faster than than many might expect,” said Branch For now, though, gains have been slow and concentrated in seasonal jobs like retail trade.
(000s)
“We've slowed down the bleeding of jobs but I'm not necessarily sure we're putting them on yet,” said Geoff Wagher, labor market analyst for Workforce Capital, which manages employment services and training.
Transition period As to the job picture, Branch—who believes overall job losses ended in the third quarter ‘09—isn't ready to say net job growth has begun yet, because of seasonal factors. He views today's economy as a transition period where some employees are cutting jobs while others are adding them.
TAOS
SAN MIGUEL RIO ARRIBA
Although job growth has flattenened, wages have slowly be increasing.
SANTA FE LOS ALAMOS
Fewer seek benefits In another hopeful sign for Santa Fe's economy, the number of people filing for unemployment benefits has flattened out from the highs of the 3rd quarter.
The statewide rate stayed even at 7.8% percent in November from the previous quarter, however up a full point from June’s unemployment rate Workforce Commission reported that Santa of 6.8%. The New Mexico unemployment rate Fe's unemployment rate dipped to 5.4 percent remains well below the November U.S. jobless in December, from 5.5 percent in October. rate of 10 percent.
Santa Fe 2010 Retail Market Statistics Net Space Downtown South Capitol District Cerrillos Corridor Medical District Southside Westside TOTALS
Space Available
2010 Vacancy
Planned Space
1,553,758 175,266 880,953 173,450 2,316,176 446,809
72,826 17,428 31,759 0 179,428 8,750
4.69% 9.94% 3.60% 0% 7.75% 1.96%
80,000 112,000 272,000 150,000
5,546,415
310,191
5.60%
614,000
Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico Š 2010 Allen Branch
Santa Fe 2010
2008-2010 Net Absorption (10,602) (9,794) (19,481) (0) (80,503) 2,280 (118,097)
Paisano Building is one of several large continguous spaces that make up a bulk of Santa Fe’s office vacancy rate.
Santa Fe 2010 Retail Market Statistics Net Space Downtown South Capitol District Cerrillos Corridor Medical District Southside Westside TOTALS
Space Available
2010 Vacancy
Planned Space
1,553,758 175,266 880,953 173,450 2,316,176 446,809
72,826 17,428 31,759 0 179,428 8,750
4.69% 9.94% 3.60% 0% 7.75% 1.96%
80,000 112,000 272,000 150,000
5,546,415
310,191
5.60%
614,000
2008-2010 Net Absorption (10,602) (9,794) (19,481) (0) (80,503) 2,280 (118,097)
Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico Š 2010 Allen Branch
Santa Fe 2010 Office Market Statistics Net Space Downtown South Capitol District Cerrillos Corridor Medical District Southside Westside* TOTALS
Space Available
2010 Vacancy
Planned Space
1,000,013 227,737 98,500 540,894 864,358 459,203
125,782 4,851 5,617 46,543 190,763 28,628
12.58% 2.13% 5.70% 8.07% 22.07% 6.23%
25,000 11,000 48,000 84,000 62,000 54,000
(88,710) (181) 6,701 (6,243) (137,751) 8,960
3,190,705
402,184
12.60%
251,000
(223,255)
*Includes Office/Warehouse. Does not include government owned buildings Source: Allen Branch, Branch Realty Commercial Advisors, Commercial Association of Realtors New Mexico Š 2010 Allen Branch
2008-2010 Net Absorption
Santa Fe's Railyard —A Destination for the Arts, Dining and Entertainment
Market Station
Santa Fe’s Railyard is now home to more than trains. It is fast becoming a vibrant eclectic area filled with art, dining, entertainment and recreation. The Railyard is another central Santa Fe destination. Not far from the Plaza and Canyon Road, the Railyard has always been a multi-purpose site In 1880 the first train came into Santa Fe. The Atchison, Topeka and Santa Fe Railway Company made its journey to Santa Fe on a spur line, built because mountain ranges prevented Santa Fe from being
on the main line. With the train, came tourists. The Railyard soon developed into a social center. The Railyard became a gathering place for Santa Fean and travelers. “By the 1940s the Santa Fe Railyard was an active center for the locals in Santa Fe.
In 2002, building on this history of a social center and gathering place,
the Railyard Master Plan was approved by the City of Santa Fe. The Master Plan honors the history and cultural heritage of the site and encourages the presence of local businesses, particularly non-profits, with a focus on arts, culture and community. The Railyard already is moving forward with the presence of the new Santa Fe Farmers Market, REI, Flying Star Cafe, SITE Santa Fe, Warehouse, 21 and El Museo Cultural. Soon will be the new Maya Cinema’s Railyard 13+IMAX plus many more galleries, street cafes and taverns.
Santa Fe
lodging market By Jessica Dyer
A
ccording to the latest New Mexico Lodging Association report, Santa Fe hotels recorded an occupancy rate of 42.2 percent in November, slightly below the statewide average of 45.8 percent. Cerrillos Road hotels had the hardest time filling rooms, experiencing just 34.3 percent occupancy compared to the 49.3 percent rate of downtown hotels. The NMLA report shows that Cerrillos Road hotels charged an average rate of $59.71 per night and generated just $20.50 of revenue per available room. Downtown hotel rates were $125.21 per night and those hotels made $61.79 in revenue per available room. Penny Aley, owner of the Silver Saddle Motel at 2810 Cerrillos, said business was particularly hard to come by last month. "I would say this past November has really been bad," she said. "I never expected it to be this slow." The new numbers indicate the local hotel industry is still struggling to generate business in a weakened economy. John Rickey, general manager of La Fonda on the Plaza, said that makes sense. Rickey called the lodging industry - especially in tourist locations like Santa Fe - a "lagging indicator" of the economy. "The stock market is a leading indicator, and it's been showing signs of picking up for a little while now, but the hotel industry is anywhere from six to 12 months lagging, so nothing's been a surprise as of yet (with occupancy rates)," he said. Santa Fe occupancy rates for the 2009 calendar year through November were 57.7 percent, down from 63.4 percent for the same span in 2008. January and April saw the steepest declines when compared to last year's figures, but the autumn months have been comparable to the same months in 2008. Rickey said La Fonda's November occupancy was similar to what it experienced during the same month in 2008 but
SANTA FE
Inn at Loretto is one of Santa Fe’s most picturesque hotels. It is reminiscent of the ancient Taos Pueblo and epitomizes traditional pueblo-style architecture.
Hospitality Market
highlights didn't compare to the record levels experienced in 2007. Overall, Santa Fe hotel occupancy rates were 2.1 percent lower this November than in 2008 and 10.1 percent lower than two years ago. Rickey said La Fonda has made some "prudent business changes" to account for a decline in visitors but wasn't more specific. Hotels that rely most heavily on business travelers have generally fared better than tourist-heavy markets such as Santa Fe, he added. "This is discretionary spending (at Santa Fe hotels), where other spending may be looked on as required," Rickey said, adding that consumer confidence will have to rise considerably before there's any major turnaround. "I do not see a dramatic increase until potentially 2011," he said. Aley at the Silver Saddle isn't expecting any immediate run on her rooms, either. "In this business, you always have to be optimistic, but do I expect things to pick up? I do for the summer, but right now I don't see anything," she said. "I don't see the people coming in."
• REVpar (revenue ÷ available rooms) should remain flat with growth not estimated until the third quarter of 2011. • Average daily rates are estimated to have a slight uptick but generally flat after factoring out inflation. • Occupancy and visitors expected for the all important Summer season will be contingent upon factors beyond the hospitality market’s control. This may include cost of fuel, the job market, and productivity/ personal income growth. • Several hotels are using this down time to inject capital by constructing improvements and at the same reducing staff jobs and/or their hours while also cutting back on non-essential spending. The hospitality market has seen this precipitous slowdown before—in the aftermath of 9/11. However, the industry was able to come roaring back by 2003.
The pace of recovery of the U.S. lodging industry has accelerated from previous expectations, according to PKF Hospitality Research in Atlanta. Improving industry data for such key indicators as occupancy, RevPAR and demand suggest that the recovery will arrive a full quarter earlier than the firm expected in September 2009. "Make no mistake about it, 2010 will continue to be a tough year for U.S. hotel owners and operators," said R. Mark Woodworth, president of PKF Hospitality Research. "We are forecasting that, on average, properties will continue to suffer year-over-year declines in revenue and profits from an already dismal 2009. However, given the deceleration of room rate discounting that we observed during the third quarter of 2009, we believe the severity of the losses incurred in 2009 and 2010 will be less than previously forecast. In addition, yearover-year growth in important measurements ,
such as occupancy, RevPAR and demand, will be realized a full quarter earlier than we were thinking three months ago." "While our forecast for ADR movement in the third quarter was a bit pessimistic, we recognize the change in pricing trends and have applied it to our thinking regarding the future. Accordingly, this year's annual ADR forecast has been reduced to a decline of 8.8% and our 2010 ADR forecast is now a minus 1.5%. These compare to declines of 10.4% and 3.1% that we forecast last quarter," Woodworth said. PKF-HR is also now forecasting lodging demand to post a quarterly year-over-year increase during the first quarter of 2010, thus ending eight consecutive quarters of declines. On an annual basis, PKF-HR is now forecasting lodging demand to rise 1.9% in 2010, up from the 1.6% increase forecast back in September.
*
*Lodgers tax collection includes revenue from construction of new Convention Center.
Santa Fe Travel Accolades:
2009 World’s Best Cities Award
Cities to Watch in 2010
Top 10 Best Places to Live
#1 Art Destination
#2 Art Market in America
Best of U.S. Summer Travel
Canyon Road Top 10 Streets in USA
2007 Best Towns in America
Santa Fe apartment market Household Income Cap is forcing Renters out of the City
By David Eagle Billy Eagle, CB Richard Ellis
T
he Santa Fe apartment market appears to be stabilizing from its steep occupancy decline in early 2009. Santa Fe has traditionally maintained occupancy in the mid-90% range, but has been hard hit by declines in construction activity plus job losses and reduced hours among service workers. Many of these construction and service employees have traditionally rented apartments. It appears that many of those suffering employment setbacks in Santa Fe were from out of the area and simply returned home rather than waiting for better times. Comments that the “'shadow market”' of unsold single family homes and condominium units has lured renters away from apartments is unfounded. Most Santa Fe home rental prices are well above apartment rental rates and interviews of condominium managers indicates a minimal impact from condo rentals.
While Santa Fe’'D5s apartment market shows signs of stabilizing, the signs are a mixed bag. Weighted average occupancy improved between May and September from 83.34% to 87.87%. Offsetting gains in occupancy was a decline in weighted average monthly rent from $769 to $728. The net effect was a slight decline in effective rent from $641 to $640 with gains in occupancy offset by declines in average rent. The percentage of Santa Fe properties offering some form of concession also increased significantly from 67% to 83% between May and September. As with Albuquerque, concessions are difficult to quantify,but it appears that the market average by those offering concessions is currently between three and four weeks with a bias toward four weeks. The percentage of Santa Fe properties experiencing occupancy of more than 90% increased modestly from 47% in May to 55% in September. The occupancy categories below 90% were mixed compared to the prior survey. Properties operating at less than 85% improved from 48% in May to 28% in September. The 85% to 89% category showed major improvement moving from 5% to 17% between May and September.
It’s important to note that the relatively small number of larger Santa Fe properties can result in sudden shifts in market statistics. The bottom line appears to be that the market is stabilizing and positioning for improvement, although any significant improvement in occupancy, rent and concessions is dependent upon creation of jobs in the construction and service industries. The Santa Fe September survey covers 18 apartment properties of more than 47 units totaling 3,002 units. The Santa Fe survey includes nine market rate and nine affordable properties. Affordable properties average 90.44% occupancy and $711 weighted average monthly rent. Market rate properties average 85.87% occupancy and $741 weighted average monthly rent. The disparity in occupancy can be partly explained by the older average age of market rate properties (1985 vs. 1996) and partly by the lower rents at the affordable properties. The affordable properties’ lower rents reflect income or rent limitations placed on the properties by the public agencies providing financing.
Traveras Apartment Complex—one of several new apartment complexes to come on-line in the last 5 years.
highlights Survey findings for the predominant or “'D2core”'D3 unit types, which include 97.10% of total units reporting, include: •
•
•
Efficiency units represent 13.66% of total surveyed units with 82.44% weighted average occupancy, up from 73.22% in May. September 2009 average rent was $505 or $1.00 per square foot, an 11.40% decrease from May and 17.89% lower than September 2008. 1 Bed/1 Bath units represent 24.48% of total surveyed units with 85.03% weighted average occupancy, up from 84.70% in May. September 2009 average rent was $663 or $1.02 per square foot, a 7.27% decline from May and a 10.16% decrease since September 2008. 2 Bed/1 Bath units represent 24.08% of total Surveyed units with 88.80% weighted average occupancy, up from
78.15% in May. September 2009 average rent was $730 or $0.91 per square foot, a 5.81% decrease from May and a 10.65% decrease from September 2008. •
2 Bed/2 Bath units represent 20.82% of total surveyed units with 91.84% weighted average occupancy, up from 87.20% in May. September 2009 average rent was $803 or $0.85 per square foot, a 4.97% decrease from May and a 7.06% decrease from September 2008.
•
3 Bed/2 Bath units represent 14.06% of total surveyed units with 88.63% weighted average occupancy, down from 90.13% in May. September 2009 average rent was $913 or $0.83 per square foot, a 1.72% decrease from May and a 2.98% decrease from September 2008.
Also calculated is “'D2effective rent”'D3 by unit type and for the overall Santa Fe market. Again, effective rent is weighted average rent times weighted average occupancy. Santa Fe effective rent was stable with a negligible 0.19% decrease between May 2009 and September 2009. Two bedroom one bath unit effective rent increased 7.03% over May, but was offset by a 6.91% decline in one bedroom one bath effective rent. Other unit types were flat. Santa Fe market effective rent has declined by 15.11% since September 2008 with the largest declines in the smaller efficiency and one bedroom units. In spite of having fallen on hard times, Santa Fe can be expected to rebound as the national, state and local economies recover. Job growth is the key to apartment demand throughout the country and Santa Fe is no exception. Santa Fe’'D5s cachet as a major tourist and art destination has not changed and will hold it in good stead as the economy recovers. On the supply side, Santa Fe’'D5s local government can be expected to continue to make new development difficult and lending for new construction is expected to be scarce for three or four years. Coupled with the current weak rental market, it is unlikely that significant new units will come on line for 3 to 5 years. Santa Fe has historically commanded significantly higher average and effective rents than Albuquerque, but that has changed with the September 2009 survey.
Santa Fe Apartment Occupancy & Rates September 2009
Santa Fe Apartment Stats September 2009
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Santa Fe
Experts point to stabilization in the housing and job markets as signs the recession has ended
Housing Market
By Alan Ball Southwestern Title & Escrow
S
Santa Fe City and County sales of homes during November 2009 was up over the same month in 2008 by nearly 35%; the largest increase month over month from a year before since the go-go years of 2004 and 2005. This is partly due to the first time home buyers tax credit, which was thankfully extended thru mid 2010. After over 3 years of sliding home sales in our market area, [Santa Fe] seems to have turned the corner and is now headed in the right direction. You may already know that Santa Fe has avoided much of the large scale price and value drops that afflicted other cities in the Southwest and West. We did not have runaway appreciation earlier this decade so did not have as far to fall when the market started turning in 2006. That’s not to say we haven’t had our difficulties, but foreclosures and short sales are relatively small in number in Santa Fe compared to many other markets.
The The number number of of homes homes sold sold at at aa $1 $1 million million and and above above has has dropped dropped 48% 48% since since the the highs highs of 2005. of 2005.
SANTA FE highlights • Santa Fe City and County sales of homes during November 2009 was up over the same month in 2008 by nearly 35% • Sales are still 55% below the levels of 5 years ago, when new homes sold in 2005 at an annualized rate of 760. • During the height of the housing boom, the median home price for 2005 was approximately $425,000,or just about 6% higher than the year ending 2009. • The construction-put-in-place numbers that came out in 2009 will show that housing is starting to add to the GDP.
UNITS SOLD AND MEDIAN PRICE Sales of single-family homes jumped nearly 7% in 2009 to an annualized rate of 384 homes sold, according to a report just released. The gain over 2008 was much greater than expected. A consensus of housing analysts had forecast seasonally adjusted sales to again be negative. However, sales are still 55% below the levels of 5 years ago, when new homes sold in 2005 at an annualized rate of 760, according to the report released by the Alan Ball and the Santa Fe Association of Realtors. During the height of the housing boom, the median home price for 2005 was approximately $425,000, or just about 6% higher than the year ending 2009. Still, the report is very positive, especially since many analysts and Realtors were expecting another yearover-year drop in sales. "This is really good news all things being equal,� says Alan Ball, Senior Officer at Southwestern Title & Escrow. “Considering what's gone on in past years, with all the foreclosure activity sending down home prices nationally, and for home sales to jump like this is a good indicator that Santa Fe’s economy may be bottoming out." However, builders are going to have to take down some of their inventory before any real price appreciation is going to happen. That tells you it's still very hard to sell a new home. Much of that struggle is because the housing stock is concentrated in the sprawling South and Southeast and inventories are misaligned to the market. Much of this housing stock has a capped household income requirement imposed by the City which inversely prices many out of the market.
COYOTE
Executive Chef/Owner Eric DiStefano
132 W. Water Street Santa Fe, New Mexico 87501 www.coyotecafe.com www.opentable.com 505.983.1615
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Contact: Allen Branch • Branch Realty Commercial Advisors • 505.920.9900