Office space needs likely to wane
The Anchorage commercial real estate market in 2002 may see a need for warehouse space while demand for office space could slow, according to a panel of industry officials.
Construction to be completed later this year will add 120,000 square feet of office space, said Chad Frampton, partner and broker at Schwamm & Frampton LLC of Anchorage.
The economic outlook for Anchorage could see some job growth this year, said Scott Goldsmith, director of the University of Alaska Anchorage Institute for Social and Economic Research.
However, he cautioned that a main economic engine, federal funding, won’t continue forever. Alaska ranks first in the nation for per capita federal dollars, he said. Also, a state fiscal gap could knock the air out of the economy, Goldsmith said.
"In the near term the future looks bright but be prepared for a bumpier ride somewhere down the track," he said.
Speakers addressed these topics Jan. 11 during the Building Owners and Managers Association of Anchorage commercial real estate forecast meeting at the Millennium Anchorage Hotel.
In the office space sector, 2001 posted strong results with declining vacancies and climbing rental rates, Frampton said. However, he believes this year may herald slackening demand as the economy slows and new office space comes online.
"I think 2002 will be slow and steady compared to the last couple years," Frampton said.
More office construction probably won’t occur until current new space is absorbed by the market, he said.
The Class A vacancy rate is 2 percent, and 4 percent for Class B and C office space for a total of vacant 300,000 square feet, he said.
Rental rates for new Class A office space range from $2.65 to $3.25 per square foot each month. Rates for existing Class A space are $2 to $2.50. The range for Class B office space is $1.45 to $1.85 and for Class C, $1.10 to $1.40.
Large blocks of Class A office space are limited, he said. Office space is scarce in the university/medical district despite new offices at Lake Otis Medical Center primarily for HealthSouth, he said.
Providence Alaska Medical Center’s emergency room renovations completed last year also included adding 40,000 square feet of office space, although most of that is already leased, he said. Alaska Regional Hospital has office space available in its 28,000-square-foot Building C, Frampton said.
In South Anchorage, the district’s largest office complex, Dimond Center, has 11,000 square feet of vacant space from the former Walden Pond School. Also, Arctic Slope Regional Corp. plans to sell its South Anchorage offices and move to its Midtown headquarters later this year, he said.
ASRC will be the primary tenant for the new 10-story, 200,000-square-foot building, although 40,000 square feet on the top two floors will be available for lease, he said.
A new office building at 3000 C St. should soon be completed, adding another 80,000 square feet to the office market, he noted.
One proposed project, the three-story Sanders office complex at 36th Avenue and Denali Street, may add 45,000 square feet.
Such additional office space might outpace demand this year, Frampton said.
Class A office space is tight downtown, and converting older buildings to office space has helped the market, he said.
A new Class A office building is under construction in Wasilla, he noted. The 43,000-square-foot, three-story Centennial Plaza is about 40 percent leased, Frampton said.
Vacancy rates for warehouse space in Anchorage were 5.9 percent in late December out of an inventory of 13.8 million square feet, according to the Multiple Listing Service.
"Most of the space offered for lease is vacant, but very little of the space offered for sale is vacant," said Doug Taylor, a broker from Prudential Jack White Real Estate.
Last year new industrial space construction totaled $11.8 million, compared with $6.4 million in 2000, Taylor said, citing building permit statistics.
Based on the Anchorage Economic Development Corp.’s forecast for 1.4 percent job growth, "we need to build about 193,000 square feet of new industrial space in 2002 to maintain our current market balance," he said.
Anchorage should see several new construction projects this year, said Larry Cash, president of RIM Architects.
"It is my belief that we’re going to see a continued good year for new construction. We may see less vertical construction and quite a bit more revitalization," he said, citing possible renovations at University Center.
The ASRC building should be ready for tenants in September. Also in Midtown Anchorage, construction is under way on the BP Energy Center near BP Exploration (Alaska) Inc.’s headquarters.
Cash said retail construction includes Fred Meyer in South Anchorage and possibly Eagle River, Home Depot in East Anchorage, Lowe’s Home Improvement in South Anchorage and renovations at Carrs Quality Center in Eagle River. Several hotel and restaurant projects also are under way.
Municipal projects should include expanding the Anchorage Museum of History and Art, the city’s permit center and the Anchorage Senior Center.
Also, the University of Alaska Anchorage library expansion should go out to bid this spring. Work on the three-story project should be finished in 2004 and add 126,000 square feet to the 87,000-square-foot building, Cash said.
This year Anchorage will continue to add retail space to an already "overstored" market, said Bill Gee, vice president and broker at Hickel Investment Co. The excess of retail space parallels a national trend, he said.
Anchorage’s 6 million square feet of retail space needs a population of 402,000 to support it, Gee said. Even including residents of the Kenai Peninsula and the Matanuska-Susitna areas, Southcentral’s population totals 370,000, he said, and that’s not counting about 1 million square feet of retail space in those areas.
Retail space opening this year will affect the market and other retailers, he said.