2009 Commercial Real Estate Forecast: looking more positive than the Lower 48.

• Author: Bjorn-Roli, Per E.
• Position: REAL ESTATE

With many of the national commercial real estate markets in turmoil, national and regional market participants, including investors, developers and lenders, are following Alaska's real estate trends closely. One question frequently asked by our national clients is; "How is the market doing in Alaska?" If by the term, "Alaska," one means the entire state, then unfortunately there is no simple answer. Like the climate, geography and people, the Alaska commercial real estate market is extremely complex and diverse.

The high price of commodities insulated Alaska from the national recession throughout 2008 and statewide employment grew at a healthy rate of 0.7 percent. With the precipitous fall in commodity prices, Northern Economics and the Department of Labor forecast that Alaska will have negative employment growth of 0.6 percent and 0.2 percent, respectively--the first decline since 1987. In the current economic environment, the forecast dip in employment is viewed by most economists and members of the business community as relatively positive news--after all, this is a bump in the road compared to what most regions of the country are experiencing. Based on this information, here is what to expect in the commercial real estate markets for 2009.

AVAILABILITY OF CAPITAL

Since 2000, the availability of capital in Alaska has been at historic highs. Alaska is not immune to global finance conditions, and thanks to excesses on the part of our friends in the Lower 48, the availability of capital has been significantly reduced. Fear not--in Alaska, capital will not disappear altogether and this reduction is best viewed as a return to conditions more typical of the 1990s. Chris Anderson, deputy director with the Alaska Industrial Development and Export Authority (AIDEA), indicated they have significant funds available in their loan-participation program, but that interest rates have trended upward over the last year to a level more in line with the prevailing rates of 2002. AIDEA reported a very low default rate of less than 1 percent and it has not noted any increases in defaults over the last year. Other lending institutions interviewed noted that they were doing deals, but at more conservative terms than in the past. Sound projects with preleasing and companies with strong balance sheets will continue to be financed, but the number of speculative projects and lending to speculative companies, will be reduced. The market has come full circle, and having a relationship with your banker will once again be critical for achieving real estate success.

ANCHORAGE PALMER AND WASILLA

Despite the delivery of over 410,000 square feet of space and Anchorage's first two high-rise office buildings in 20 years, Anchorage office vacancy remains at 4 percent for Class A product, 7 percent for Class B product and 5.5 percent on a blended basis. This indicates a tight market for Class A and a healthy market for Class B. Only 12 percent of 2008 deliveries remain available, indicating a strong rate of absorption for new construction. New supply will be limited to Alaska Railroad's historic freight shed, consisting of 36,000 square feet of Class B space. No new Class A...