A Changing LandscapeAfter a rocky start to the year with many national retail closures, the Albuquerque retail market has seen some positive movement. Amongst the rapid change and uncertainty, new retail trends have emerged.

The second quarter saw more national retailers file for bankruptcy and close stores in Albuquerque. Gymboree, Payless ShoeSource and Rue21 all declared bankruptcy. Gymboree has not announced which locations will close. Payless ShoeSource closed at Montgomery Plaza, but still has other locations open. Rue21 closed its doors at the new Plaza at Enchanted Hills shopping center. Ann Taylor Loft also closed its Uptown location as the brand continues to decrease its brick and mortar footprint. It still has one open store on Wyoming at North Towne Plaza.

Macy’s at Cottonwood Mall was the largest retail vacancy of the first quarter. After being on the market three months, the building was sold to the owner of Cottonwood Mall, Washington Prime Group. It’s unclear whether the mall will backfill the space with another large retail tenant or if it will instead repurpose it for smaller retail or nontraditional users. As retail keeps trending towards experience centers, it is possible that the mall will choose to find an alternative use for the former Macy’s building. Cottonwood Mall has taken on several experiential tenants over the past few years, including Fallout Trampoline Arena, Glow Golf, Ridiculous Fun and 3D Teeny Me.

Experiential centers continue to draw customers. Meow Wolf is perhaps the best known and largest experiential attraction in the state. In its first year alone drawing 400,000 guests and $6 million in revenue, the art collective is already looking to expand its manufacturing facility from 12,000 SF to 50,000 SF. Other retailers are seeking to offer this experiential draw to consumers as well. Currently in its planning phase, is the Snow Heights Promenade development. This project will feature retail space, centered around a stage for musical and community events. A popular destination center success in Albuquerque is Green Jeans Farmery, a popular, mixed-use destination built entirely

Research Report

ALBUQUERQUE | RETAILQ2 2017

Key Factors in This Quarter > National retailers continue to file for bankruptcy and close stores but the vacant sites are slowly being acquired.

> As in the first quarter, retail ‘experiences’ continue to thrive as well as neighborhood one-stop destination centers that include a mixture of restaurants, fitness studios, breweries and beauty salons to name a few.

> Charter schools are increasing their enrollment across the state and expanding into retail spaces.

> Demand for class A retail space is high, it does not last long on the market before being leased at a premium.

Albuquerque Market Summary

Total SF ......................................................29,165,810

Total Available SF .....................................................2,393,814

Availability %...................................................................8.15%

Change in Available SF ...............................................214,434

Total Vacant SF ........................................... 2,373,661

Vacancy % ........................................................8.08%

Q1 2017 Vacant % ...........................................................8.51%

Absorption ...................................................... 125,947

Asking Rent .....................................................................$14.19

2 Albuquerque Research Report | Q2 2017 | Retail | Colliers International2

from shipping containers and anchored by Santa Fe Brewing Company. The site, with 6,000 square feet, was recently listed for investment sale at $5.2 million.

Along the same vein are the neighborhood destination centers that have been cropping up. Retail developments are becoming neighborhood service centers, frequently involving tenant mixes that include breweries, yoga studios and other fitness centers, restaurants, coffee shops and beauty salons. These centers are one stop shops for their local communities.

Standalone restaurants continue to do well in the Albuquerque retail market, despite several closures from last quarter. One of those closures, Texas Land and Cattle on Pan American Freeway, will be filled by a Santa Fe favorite, Tomasita’s. The restaurant leased the space in May and expects to be open by October 2017. Another prime restaurant space that hit the market this quarter is Marcello’s Chophouse, which closed its doors at the end of the first quarter.

Another group of tenants expanding its footprint in the Albuquerque retail inventory are charter schools, dental and medical businesses. Charter schools are increasing their enrollment across the state. According to the National Center for Education Statistics, the number of charter schools in New Mexico has increased 220% over 10 years from 2005 to 2015. Charter schools now account for over 11% of public schools in the state. As charter schools continue to expand, their large space requirements have found obsolescent warehouse space and abandoned shopping centers or anchor tenant boxes to be a good fit.

Albuquerque continues to face challenges with being overbuilt, having a surplus of outdated space in the inventory. There is a premium for class A retail space, which doesn’t last long on the market. With retail rapidly evolving and experiential developments emerging, there is certainly opportunity for investors looking to redevelop. Examples of this include the corner of Wyoming and Comanche and Osuna and San Pedro, where a local developer is repurposing older buildings into destination neighborhood retail and restaurant hubs, and the former Hastings in Rio Rancho, which will be demised for a multi-tenant pad building.

Albuquerque Vacancy by Submarket16%

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3 Albuquerque Research Report | Q2 2017 | Retail | Colliers International

Market Statistics by UseAlbuquerque – Retail

PRIMARY USE TOTAL SF AVAILABLE SF VACANCY AVAILABLE % VACANCY % CHANGE IN AVAILABILITY RENT Q2 2017

Community 2,222,070 122,990 129,989 5.53% 5.85% 12,117 $15.04 Free-standing 8,441,577 319,552 320,672 3.79% 3.80% 8,380 $12.12 Neighborhood 7,012,403 1,110,838 1,107,288 15.84% 15.79% 42,452 $14.54 Power 1,529,223 212,755 212,019 13.91% 13.86% (6,784) $14.12 Showroom 1,851,189 - - 0.00% 0.00% - - Specialty/Theme 380,815 - - 0.00% 0.00% - - Strip 5,190,452 455,213 436,341 8.77% 8.41% (8,997) $13.26 Super Regional 2,190,336 123,733 123,733 5.65% 5.65% 82,545 $35.00Urban Retail 347,745 48,733 43,619 14.01% 12.54% (3,766) $18.42 Total 29,165,810 2,393,814 2,373,661 8.15% 8.08% 214,434 $14.19

Market Statistics by SubmarketAlbuquerque – Retail

SUBMARKET TOTAL SF AVAILABLE SF VACANCY AVAILABLE % VACANCY % CHANGE IN AVAILABILITY RENT Q2 2017

Cottonwood 4,156,757 245,743 245,743 5.91% 5.91% 78,775 $14.65 Downtown 597,532 47,996 45,496 8.03% 7.61% -6,380 $16.31 Far Northeast Heights 3,961,526 321,325 319,682 8.11% 8.07% -15,259 $16.69 North I-25 3,327,712 343,271 353,369 10.32% 10.62% -17,945 $12.17 North Valley 886,696 74,220 65,220 8.37% 7.36% 3,278 $11.71 Northeast Heights 4,162,101 263,805 268,281 6.34% 6.45% 5,499 $12.44 Rio Rancho 2,057,416 280,174 274,974 13.62% 13.37% 16,670 $14.52 South Valley 1,265,369 131,955 131,955 10.43% 10.43% 11,537 $13.47 Southeast Heights 2,878,329 341,991 335,626 11.88% 11.66% -597 $12.09 University 971,353 30,702 30,702 3.16% 3.16% 14,627 $9.11 Uptown 2,459,628 122,015 116,901 4.96% 4.75% 5,114 $22.47 West Mesa 2,441,391 190,617 185,712 7.81% 7.61% 30,628 $14.27 Total 29,165,810 2,393,814 2,373,661 8.15% 8.08% 214,434 $14.19

* Retail inventory includes all multi-tenant and single tenant buildings at least 10,000 square feet. Available space includes all vacant space and occupied space currently on the market for lease. “Change in Availability” is based on the change in availability from Q1 2017 to Q2 2017. Absorption is the change in vacant space from Q1 2017 to Q2 2017. Information herein has been obtained from sources deemed reliable, however its accuracy cannot be guaranteed. The user is required to conduct their own due diligence and verification.

Copyright © 2017 Colliers International.

4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

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Copyright ©2017 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Albuquerque Submarket Area Map