A tale of two vacancy rates, and what they mean for the Downtown area economy

What businesses own or have paid to rent is one thing, but whether workers actually show up there is another

Today, reports on both
84 percent of Downtown office space is rented out, a pace similar to before the pandemic

First, the math: During the second quarter of 2022, businesses had rented out or otherwise occupied all but 16.4 percent of Downtown area office space, an improvement from the 19 percent vacancy rate at the beginning of the year and 18.6 percent at the end of 2021, according to Colliers, a commercial real estate services firm.

There are a few ways to look at that, and the first is to treat it as good news: The vacancy rate decrease actually took the Downtown area fairly close to the 13.3 percent rate registered by the Journal Center/North I-25 area, which is considered one of the city's most desirable office locations. It should be doubly good news for restaurants and other Downtown area retail operations, since in theory it translates into more people walking around with money in their pockets and a strong temptation to spend it.

"We are seeing positive movement Downtown," said Cody Martin, Colliers research analyst. "We are seeing a good amount of deals being done." 

Those positive figures come despite the departure early this year of Molina Healthcare from 107,000 square feet of space at 400 Tijeras, a shift of a magnitude that Martin said "you don't see that often Downtown." (Molina announced in July a nationwide shift to emphasizing remote work, trimming its office use in the process.)

Noting another positive, Jim Chynoweth, the New Mexico managing director for Global Commercial Real Estate Services, said that while Downtown has had no significant new office construction in decades, he has seen more investors interested in buying somewhat older Downtown structures and sprucing them up. He pointed to the recent sale and renovation of the 500 Marquette building, a fifteen-story structure built in 1986, as an example.

"With a change in ownership, they're seeing a lot of activity - more than in the last ten years," he said.

But another way to look at the new numbers is as possible background noise, because despite the positive anecdotes, it is not precisely clear why the vacancy rate has dropped. Maybe it's a genuine increase in demand, or maybe it's one or two actors making what looks like a big splash because it's a relatively small market pond.

Some of it is a genuine statistical glitch, Martin said, related to a recently-sold building that Colliers temporarily removed from its research base because it couldn't get good information about the property's status. 

Still another way to look at this is to conclude that the more things change Downtown, the more they stay the same. Quarter to quarter, the numbers may go up or down a point or two, but occupancy rates have actually remained stable since 2019. Since then, despite parking challenges and security concerns particular to the city center, plus a certain pandemic, the rate has stubbornly stuck to the high teens. Not great, perhaps, but certainly not the catastrophe you might expect reading headlines in recent years about the death of the office.

Should the situation eventually sort out in such a way as to push up vacancy rates, however, it could increase the incentive to transform them into housing, something that the city redevelopment officials would like to see happen anyway because new residents and their spending habits contribute to revitalization. 

But that too is complicated: A number of older commercial buildings, Chynoweth said, are unlikely candidates for office upgrades thanks to a host of reasons including ceiling heights that are not up to standard and poor parking options.

"The cost of converting them to housing is going to be pricey," Chynoweth said, "so it's not going to be affordable housing."

He cited the Banque Lofts (Third and Central) as an example of an older building conversion successfully combining retail and residential with some remaining office space. (The lofts command some of the highest rents in the core.)

Recognizing that hybrid work is here to stay, Chynoweth added, office developers overall are moving toward providing less room per employee, with "more collaboration space and less private offices."

But the death of the office? That has been greatly exaggerated.

"When you think about it, the collaboration aspect is the main reason that offices are going to continue existing," he said.

—By David Lee

Two and a half years after the lockdown, remote work and COVID cautions still translate into fewer people traveling to the city center every day
Before the pandemic, the official office vacancy rates measured by researchers and explored in the above article could be relied on as a rough indication of how many commuters were toiling away in Downtown cubicles all day - and, often enough, breaking away to bolster the bottom lines of coffee shops, restaurants, and bars, with all the comforting sense of urban hustle and bustle that entails.

But COVID and the rise of remote work introduced an entirely new and much-less-official vacancy rate into the equation: The pace at which people actually show up to those Downtown area offices that are all-but-fully rented out, and how much they venture out beyond that when they do. Nobody is measuring that rate precisely, but two and a half years after the first lockdown, it still appears to be off the charts.

Take the case of the city and Bernalillo County, two major Downtown core employers. Workers there are allowed to clock in remotely up to two days a week when their managers agree they can fulfill job responsibilities from outside the office. Neither entity tracks the number of employees actually using this option, but county spokesman Tom Thorpe told DAN that it is certainly common in his workplace and that he personally works remotely when he can. There is a similar hybrid option at the U.S. Forest Service's regional headquarters (Broadway and Lead), another major government office building.

Those three workplaces alone could potentially account for hundreds if not thousands of weekly trips to Downtown that happened before the pandemic but don't anymore.

On the ground
Mark Migliaccio, for one, can see the very real difference work-from-home policies like that make in the Downtown area, having wandered around the place for 29 years in his capacity as president of Metrolink Courier.

"It's easier to get a parking space, that's number one," Migliaccio said, adding "I notice the elevators aren't as full."

He also sees fewer people walking along Central than before the pandemic, which he finds disappointing because he enjoys the Downtown urban vibe. While many may like the idea of at-home employment, he said people he encounters in offices "are pretty happy to be back to work."

Metrolink's business slowed only somewhat with the pandemic, Migliaccio said, but that lost business seems to be "trickling back" as more people return to in-person work. The company frequently carries materials to and from law offices and various courthouses, but he said its workload is diverse and has even included new jobs transporting COVID samples and tests.

Over on Fourth and Silver, the Episcopal Cathedral of St. John has in the past couple of years made work arrangements more flexible for some of its 14 positions and completely redesigned others, said Kristina Maulden, the cathedral's dean.

"From prior to COVID to now, a lot of job descriptions themselves have changed to kind of flow with how the work of the church has changed," Maulden said. That flexibility has "become kind of a norm … my finance person will say, 'Hey, my kid has to stay home from school, so I'm just going to work from home.'"

A similar evolution has been happening at Rio Grande Credit Union, which has in the last couple of years grown its Downtown area staff by adding about fifty call center and e-banking employees to offices across Fourth Street from its Wells Park branch, said Lily Currin, the vice president for human resources. Employee work weeks range from completely remote to completely in-person, with hybrid arrangements in-between.

Though it has taken some adjustment, she believes workers are "incredibly happy" with their options. In a recent organization-wide evaluation, she said employees rated the hybrid options as a main reason they continue working for the credit union.

Currin is also in a position to notice the changing schedules of other Downtown area workers and residents. For one thing, the traditional lunch hour rush at the credit union's walk-in branch location has eased and spread somewhat throughout the day, suggesting that members with Downtown-based jobs have the flexibility to come in when they choose or to use Rio Grande branches elsewhere in town.

"At first, remote work just seemed like a temporary adjustment to the pandemic, she said. "Now we realize there's been a shift - a cultural shift."

The restaurant angle: Still a mixed bag
As workers and their employers sort out new fully-remote or hybrid arrangements, the effect of that on the local hospitality sector has been all over the map.

Currin, who calls herself as "a complete foodie," said she returned to restaurants as soon as they reopened, but added that it often seemed like she had entire establishments to herself. Recently, though, she had to wait in line for a table at Monroe's New Mexican Food (Fourth and Mountain) and found that what once would have been a bit of a pain had become a reason to take heart.

Others are less optimistic. Cecilia's Cafe (Fifth and Silver) owner Cecilia Baca has shortened hours and stopped serving on weekends, and she's concerned about the impact of homeless people and inflation on Downtown businesses.

Before the pandemic, "we were constantly busy," Baca said. "But now, it's nothing like that."

Business also remains low relative to pre-COVID levels at the Baca Boys Cafe (Fourth and Central), said Zach Baca, a member of the family that owns the restaurant. He cited the dearth of large Downtown events at the convention center and elsewhere as a major contributing factor.

The café hasn't cut its hours, though, Baca said, and he thinks he is noticing more people coming through the door, including a small uptick in large groups of diners who linger to talk business.

But even if workers come back in force, COVID precautions keep some of them from venturing out of the office much. Kiana Garcia, who works at Monica Gettler State Farm, an insurance agency at Broadway and Tijeras, said their office never closed and that everyone works on-site. But she's not eating out, and living close enough to go home for lunch isn't the only reason.

"One of my coworkers actually is expecting a baby, so we all like to take precautions here," Garcia said. "We really like to limit where we go."

—By David Lee
'Fall Feels' concert series continues in Old Town
Look for jazz, contemporary mariachi, flamenco, and other genres at Plaza Don Luis this afternoon and every Thursday from 4 to 6 p.m. through the end of October. The complete calendar is here. Also today, a snake-themed show called "Elements of Eden" by Alexandra Bowers opens at Lapis Room, a gallery on the same plaza. Details here.
Downtown Albuquerque News covers Downtown, Old Town, and surrounding neighborhoods. We publish weekdays except for federal holidays. If someone forwarded DAN to you, please consider subscribing. To subscribe, contact us, submit a letter to the editor, or learn more about what we do, click here. If you ever run into technical trouble receiving DAN, click here.
Copyright © 2022 Downtown Albuquerque News, All rights reserved.

Manage your subscription here.

Email Marketing Powered by Mailchimp

This email was sent to <<Email Address>>
why did I get this?    unsubscribe from this list    update subscription preferences
Downtown Albuquerque News · PO Box 1203 · Albuquerque, NM 87103 · USA