Close quarters: higher-end office space is in demand, but in short supply. New construction will change that.

• Author: West, Gail

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Searching for higher-end office space in Anchorage? Good luck. "There wasn't any multi-tenant office space constructed in Anchorage between 1986 and 2003," said Chris Stephens, a partner in Bond, Stephens & Johnson, one of the city's largest commercial real estate brokerages.

"Since then, we've added a number of new buildings-Centerpoint at 90,000 square feet, Alaska USA (Federal Credit Union) at 92,000 square feet, and the ASRC building at 192,000 square feet, for example," he added. "But we still have a tight market."

Anchorage currently has less than a handful of sites offering 5,000 square feet of class A space, according to Stephens, and the vacancy rate stands at less than 1.5 percent. The rental rate for existing class A space is $2.55 to $2.75 per square foot, Stephens added, "and the new buildings are in the $3 to $3.50 per-square-foot range."

Stephens said that with the construction of newer office space, many tenants moved out of their older buildings and occupied the newer ones.

"There are questions, though, as to where the market will go from here. It's a very dynamic market. If a building owner has to cut rates to get tenants, that can ripple through the whole market," he said, "and no one is building class B space because construction costs are so high."

BANKING ON CONSTRUCTION

Several developers, however, are banking on a continued strong commercial space market. JL Properties and Ruby Investments Inc. are erecting two new midtown commercial buildings with space for multiple tenants-JL Tower in the Centerpoint Business Park, and the new mixed-use, retail-office building on C Street between Northern Lights and Benson boulevards.

"We looked at the rental market," said Leonard Hyde, a partner with John Rubini in JL Properties and president of the firm. "Anchorage has the lowest class A vacancy rate of any significant market in America that I know of. It's pretty unique to have a market so tight in terms of big blocks of space."

JL Properties invests in developments in Alaska and Outside, and Hyde said JL saw an opportunity to build class A space in Anchorage because the vacancy rates here are so low and the rental rates are much higher.

"There is one building besides ours under construction now. We're adding 300,000 square feet and they're adding 100,000 square feet, but we see the market continuing to grow and it should absorb both buildings easily," Hyde added.

JL Tower, the $60 million, 14-floor building currently under construction, is scheduled for completion in March 2008, and the primary tenant will be Chugach Alaska Corp.

"Chugach is an investor, as well," Hyde said, "along with Washington Capital Management, a Seattlebased manager of union pension funds. As a result, this project is 100 percent union."

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Chugach will occupy just over a third of the space at more than 100,000 square feet, Hyde added, and he said almost half the building is now under lease.

"It's on the...