Anchorage office space 2008 forecast: rental, vacancy rates set to rise with advent of new buildings.

• Author: Opinsky, John
• Position: BUILDING ALASKA

2007 RECAP

Activity in the Anchorage office market was slower in 2007 compared to the faster pace set by the rapidly expanding Native corporations in 2006. There are two theories as to the cause: One, large users were trying to maximize their space efficiency in their existing locations because of increasing rents; and two, many groups were taking a wait-and-see attitude regarding the natural gas pipeline. In spite of a lack of activity, vacancies continued to be low in most parts of Anchorage, particularly in downtown and midtown where the rental rates hit all-time highs in 2007. As a result of low vacancy rates over the last two years, several new buildings are almost complete, and others may break ground this year.

OFFICE VACANCY

Vacancy rates continue to be in the 4 percent to 5 percent range throughout Anchorage in the Class A market. Larger blocks of Class A office space (more than 10,000 square feet) are almost impossible to find downtown and very limited in midtown where there are only a few choices. In the Class B and C markets, the vacancy rate is approximately 7 percent to 8 percent, with only a handful of buildings with spaces more than 10,000 square feet.

RENTAL RATES

Base rental rates for existing Class A buildings are ranging from $2.40 to $2.75 per rentable square foot per month ($28.80 to $33.00 per rsf per year). Landlords are typically receiving annual 3 percent-per-month increases beginning in the second year of the term, and in some cases, operating expense pass-throughs as well. With continued increases in demand, the existing building rents are rapidly catching up with the new construction rents. Rates for buildings completed in 2005 and 2006 that are presently available are in the $2.75 per rsf per month range ($33.00 per rsf per year), with similar increases in the latter years. The newest buildings to be ready for occupancy in 2008 will have starting rates between $3 and $3.30 per rsf per month ($36.00 to $39.60 per rsf per year).

Class B rates are ranging from $1.55 to $1.85 per rsf per month ($18.60 to $22.20 per rsf per year), depending on the quality and location. Class C rates are ranging from $1.20 to $1.50 per rsf per month ($14.40 to $18 per rsf per year) and are expected to soften in the next year.

DOWNTOWN

The downtown office market is extremely tight with most of the larger buildings at 100 percent occupancy. Class A building vacancy is lower in downtown than in midtown at less than 2 percent. Venture...