There's been plenty of buzz over the last year about a cooling off in the Anchorage real estate market.
A slowdown in home sales and the construction of new single-family houses is one thing.
But what's going on in Anchorage's commercial real estate market is quite different.
While the first part of this decade saw lower-rise office buildings pop up all over town, particularly throughout Midtown, the latest trend is gleaming high-rise buildings, with some finished this year and more to come.
Pers Bjorn-Roli thinks Anchorage increasingly will look more urban due to the plans for offices that stick up above the crowd. Bjorn-Roli is managing director of Reliant LLC, an appraisal firm that recently published an analysis of the Anchorage office market.
Bjorn-Roli points out another indicator of economic interest: You might think the 1.7 million square feet of office space built since 2000 would have loosened up the city's ultra-tight office market, but the vacancy rate for premium office space is a paltry 2 percent. Some commercial real estate analysts predict the market will remain tight for years.
"We just had our single largest year of new office construction since the 1980s, and yet we're only seeing a slight increase in the vacancy rate," he said.
Quite a few companies, especially oil and gas firms interested in a multibillion-dollar North Slope gas pipeline project, are sniffing around for new space in town. Though one project -- Centerpoint West, an eight-story office building in Midtown -- won't be ready for tenants until late 2009, it has already been 60 percent leased, Bjorn-Roli said.
The Reliant report, produced for the Anchorage chapter of the Building Owners and Managers Association, predicts the city's office-building boom will continue. And it predicts a continuation of the trend in low vacancy, increasing rents and a more urban character for new office projects.
Bjorn-Roli recently sat down for an interview about his firm's findings.
Below are excerpts from that conversation, in which he discusses how what's going on is good for landlords and bad for tenants, among other topics.
Q. It seems like a lot of new high rises are being built in town. What's driving the new construction?
A. We have a very tight market for office space, continued employment growth, and on top of that, we've got the prospect of a natural gas pipeline. We've seen a gradual expansion of the office market to meet this new demand. For the first time since the 1980s, we are seeing significant activity in the office market by (oil and gas) companies. The Native business sector has experienced dramatic growth over the last five years. And the state is in a good position with the revenues coming in from high oil prices. You see all components of the local office market in a fairly good position right now.
Q. You say that the local office market is becoming more urban, less suburban. Why is that?
A. We have a scarcity of land and increased demand, so we've seen a shift from mid-rise to high-rise construction. Four of the most recent Class A projects (the JL Tower, the Northern Lights tower, and two upcoming projects, Centerpoint West in Midtown and the 14-story Augustine Center downtown) have all been high-rise buildings. Five of the last nine projects have had their own parking garages. It would be one thing if these projects were located downtown, but four the five parking garages are actually located in Midtown, which has traditionally been entirely surface parking.
Q. A lot of the new high-end office buildings are owned or leased by Native organizations. How big is their impact on local construction?
A. Since 1992, Native corporation construction has been roughly a third of total new construction in the Class A market. Over the last six years, it has grown to 56 percent. Native construction has been a major influence on the office market, and as far as we can tell, that's not going to change. A number of major Native corporations are looking (for new space) at the moment. The firms' presence in the market has resulted in the Anchorage office market being more diversified than ever before. And we've seen a much higher level of quality than we've ever seen before -- such as the inclusion of museums, decorative Native artwork and artistic facades.
Q. A lot of these new office buildings are sprouting in Midtown. Why there?
A. The biggest reason is Midtown's central location. It's almost equal distance to Midtown from any point in Anchorage, which makes it very attractive. Its land prices are lower, and there is a significantly greater availability of parking than in downtown. Though downtown will continue to be the legal and government center, the financial sector has really centered itself in Midtown.
Q Your survey shows Anchorage has a really tight supply of office space. Why is that?
A. It's a variety of factors: Sustained economic growth over a period of time, and minimal deliveries of new construction in 2007. Our supply has been somewhat restricted by the fact that we have such high costs of new construction.
Q. Do the high costs of construction and high rents hamper new projects? What are the other consequences?
A. The tight market means that there are tenants with few alternatives except for new construction. And it basically puts landlords in a very favorable position -- they are able to increase rental rates.
Q. Is that hurting some local businesses?
A. Rents and operating costs have gone up. In theory, that should be offset by economic growth, but many users have been pushed out of the Midtown market, including me. When my lease came up, I shopped around Midtown and had a hard time finding anything in my price range. Tenants in this position are going to other geographic markets, such as South Anchorage or East Anchorage. Now we are seeing a slow tightening in those sub-markets. The tenants are also possibly forced out of Class A into Class B (average quality) office space.
Q. What's your outlook for new office construction projects in Anchorage?
A. Between now and December 2009, there will be no deliveries of new construction. Because of continued economic growth and a potential gas line, we should see increasing demand for Class A office space, downward pressure on vacancy and upward pressure on rents.
Q. Tell us about some big new office projects on the horizon.
A. The two largest projects out there are Centerpoint West, scheduled for completion in late 2009, and the Augustine Center, scheduled for 2010.
Centerpoint West should begin construction this summer. It is 188,275 square feet and eight stories. And it will have a 354-stall parking garage directly adjacent to it. (It will be located in the cluster of new buildings west of C Street and south of 36th Avenue.)
The Augustine Center is 365,000 square feet and 14 stories, and (its developers) are focusing on acquiring energy-related tenants. (It is planned for Sixth Avenue downtown, catty-corner from City Hall.) Both of these projects are vying for a number of major tenants.
There is a third tower proposed in Midtown, but there's no official plans associated with that yet.
Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.
