Anchorage office market a bright spot in the nation

A recent Anchorage study reports that our office market is one of the healthiest in the country with a vacancy rate of 6.1 percent, compared to 16 percent nationally. The study was done for the Building Owners and Managers Association by Reliant Advisory Services, a local commercial real estate appraisal and advisory company.

Office vacancy in the city is down about 1 percent from last year, with class A at 5.5 percent and class B at 7.8 percent. But the picture is not quite that simple. The vacancy in the class A market is split. The three newer class A buildings in Midtown account for about half of the vacant class A space in the entire city. The other half of the vacant space is scattered through all the other class A buildings in town.

One of the results of this split is that larger blocks of class A space are only available in the new buildings. The remaining class A space is mostly smaller spaces, sort of like Swiss cheese, scattered among various buildings.

Class B also has a split in vacancy rate but this split is between downtown and the rest of the city. While the overall citywide class B vacancy rate is 7.8 percent, downtown class B buildings show a vacancy of 16.3 percent. The Alaska Railroad has recently remodeled warehouse space on First Avenue into office space that will be occupied by the U.S. Forest Service later this summer. When that occurs, the downtown vacancy rate will drop to 11 percent. Even so, downtown will continue to have a high vacancy rate.

The higher class B vacancy downtown is because downtown class B tenants do not need to be downtown, so downtown landlords are competing with landlords all over town. This situation is not the same for downtown class A landlords, because their tenants are primarily government and legal entities who need or want to be downtown.

Rents are mostly the same as last year. Class A new is about $3 a square foot and older class A is about $2.65. Class B is about $1.85 but varies with the quality of the building.

Elsewhere in town, South Anchorage has about a 6.4 percent vacancy, mostly in the Dimond Center. East Anchorage has been stable, with mostly institutional-type tenants.

Leasing activity picked up some in 2011 and 2012 looks to continue this trend. But overall the activity is nowhere near the previous pace. Most tenants are happy to renew where they are and landlords are glad to have them, avoiding the cost of a vacancy, leasing and tenant improvements.

There is concern in the market that new construction is going to cause a higher number of vacancies, not so much in the buildings constructed but in the buildings vacated by tenants moving into new buildings -- office space musical chairs. Leasing activity is the result of tenants moving around, not of new or expanding tenants.

The new 83,000-square-foot Alaska Native Tribal Health Consortium building south of Alaska Native Medical Center will create a vacancy in its current East Anchorage location.

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Anchorage office market a bright spot in the nation