Material cost, limited land makes tight commercial market
The demand for commercial real estate in Anchorage is high and the availability is low was commercial broker Brandon Spoerhase’s message to the Anchorage Chamber of Commerce at its Aug. 5 Make It Monday forum.
Spoerhase, a broker for Jack White Commercial, told the chamber that the current vacancy rate for large industrial space is at 3 percent, with about 580,000 square feet available for lease in the city.
“Industrial (space) is by far the tightest product on the market, and it’s a direct result of the fact that it’s difficult to find quality clear-span, clear-height space for tenants,” Spoerhase said.
He said new industrial developments are slow to materialize because of a lack of available land in the Anchorage Bowl and the cost of building materials. For building new industrial space to be feasible, a property owner would generally have to charge more than $1.50 per square foot on a triple net lease, or an agreement where the tenant pays the facility’s taxes, insurance and maintenance in addition to standard rent and utility costs.
Class A office space is running at 5.3 percent vacancy and Class B is harder to come by with 3.5 percent of the market space available, Spoerhase said.
“There are very few options left in excess of 10,000 square feet (of office space),” he said.
Nearly 750,000 square feet of “flex” office and warehouse space is available in Anchorage, Spoerhase said, meaning that market is at 4.3 percent vacancy.
Citywide there is about 930,000 square feet worth of office space in various stages of development, but not all of it will be available for lease, he said.
Cook Inlet Region Inc., which recently announced it would be moving its corporate headquarters to a new office complex on the corner of Fireweed Lane and the Seward Highway in Anchorage’s Midtown, will occupy about 40,000 square feet of the 60,000 square feet available. The remaining space will be leased out, Spoerhase said.
With the movement of wholesale retailer Sam’s Club from its Penland Parkway location to the Tikahtnu Commons development in Northeast Anchorage, the former Sam’s Club building on Penland has been purchased by the State of Alaska for $16.1 million, he said. When revamped, the property will house the state Geological Materials Center and provide 30,000 square feet of office space. The total project cost is estimated at $24 million, Spoerhase said, and Wal-Mart Stores Inc., Sam’s Club’s parent company, donated $2.5 million to the project.
Despite a squeeze on easily developable land, Spoerhase predicted growth in commercial development.
“I think we’re going to see a big commercial bounce from oil tax reform in the next two years. There are several groups looking to develop six to eight-acre sights as a direct result of the tax reform,” he said.
Adding quality fill to sites with marginal soil is becoming an increasingly common way to expand developable acreage in the city, he said. Replacing poor, highly organic soil with buildable fill averages about $1.35 per square foot, Spoerhase said.
The market for existing retail space is running about $1.50 per square foot triple net, Spoerhase said. New retail is commonly being leased for $2.65 per square foot triple net and space in Tikahtnu Commons is going for upwards of $3 per square foot, he said.
Spoerhase announced that Walgreens pharmacy company has plans to open a fourth Anchorage location on the corner of Lake Otis Parkway and 88th Street and that national restaurant chain Texas Roadhouse will be opening its first Alaska location in Tikahtnu Commons around the end of the year.
Construction of sporting goods giant Cabela’s new 100,000 square-foot store on C Street in South Anchorage has spurred nearby projects. According to Spoerhase, the 27-acre parcel of undeveloped land on the west side of C Street, across from the Cabela’s location, is in the early planning stages for retail development. The Cabela’s store is set to open in the spring of 2014, according to the company.
Bass Pro Shop’s, which is opening its first Alaska store in Northeast Anchorage’s Glenn Square, has moved its opening date back again, Spoerhase said. The store was original planned opening in June of this year was first revised to this coming October.
“(Cabela’s) main competitor Bass Pro is pushing back their opening at Glenn Square until early 2014 as their construction schedule of opening this fall was, I think, a little aggressive for construction in Alaska,” he said.
Elwood Brehmer can be reached at [email protected].