Bjorn-Roli: Real estate logs a bumper year in 2013

Per E. Bjorn-roli

Two-thousand and thirteen was a big year in the Anchorage commercial real estate market.

It was a year of big deals. After many years without any Class A high-rise office building transactions, JL Properties started off the year with the purchase of the 17-story, 137,000-square-foot Denali Towers North and, in a partnership with CIRI and Washington Capital, finished off the year by buying the 22-story, 677,000-square-foot ConocoPhillips building for $104 million.

UAA sold the Diplomacy building to the Alaska Native Tribal Health Consortium and purchased the 1815-1901 Bragaw office complex. The state of Alaska purchased the former Sam's Club in northeast Anchorage and entered into a new lease for a Legislative Affairs office downtown.

It was a year of big announcements. CIRI announced plans to build a new eight-story, 110,000-square-foot Class A corporate headquarters. The Native corporation will occupy about 40,000 square feet, with the balance available for lease.

JL Properties announced plans for a four-story, 95,000-square-foot Class A building in Midtown. The third floor is already completely leased. JL Properties, in partnership with Outlets of the Pacific, also announced tentative plans for a 200,000-square-foot outlet mall on C Street in south Anchorage.

Hard Rock Café announced a 13,600-square-foot restaurant in downtown.

It was a year of limited construction. For the first time since 1999, no new Class A office construction was delivered. Lodging and industrial deliveries were also limited. The retail sector saw modest construction, including a Natural Pantry in Midtown, and Olive Garden, Chile's and Walgreens in south Anchorage.

It was a year of big lease-up for the Class A office market. New construction office vacancy peaked at 16.4 percent in January 2011, with the bulk of the vacancy in three Midtown towers: JL Tower, 188 WNL, and Centerpoint West. Since then, new construction vacancy has trended downward, interrupted only by Chevron unexpectedly giving back some space at JL Tower.

New construction experienced 280,000 square feet of leasing in the second half of 2012 and first half of 2013. Thus, despite substantial deliveries in 2012, new construction vacancy rates fell from 10.6 percent in mid-2012 to 7.4 percent in June 2013.

The bulk of new construction leasing was from financial, legal, health care and energy related companies, with limited government or Native corporation leasing.

The current occupancy is 87 percent at JL Tower, 90 percent at Centerpoint West and nearly 80 percent at 188 WNL. With the absorption of new construction, Class A vacancy was 5.2 percent at the beginning of the year and is now estimated at 3.5 to 4 percent.

It was a year of big sales. Many retailers saw sales volume peak in 2008 and decline in 2009 as a result of the national recession. Two-thousand and ten, 2011 and 2012 were recovery years with strong growth. In most cases, however, retail sales remained below their peaks. Indications are that many retailers and businesses will experience record sales in 2013.

Based on a review of the municipal hotel bed tax, second-quarter hotel revenue, for example, peaked in 2008 at $61.9 million dollars and declined dramatically in 2009 to $49.4 million dollars. However, in 2013, second-quarter hotel revenue exceeded 2008 levels with $62.3 million dollars in sales. While year-end data is not yet available, preliminary numbers suggest 2013 will be a record revenue year for the Anchorage lodging market.

It was a year of big discounts in interest rates. Low interest rates have a powerful effect on commercial real estate. In many markets in the Lower 48, low interest rates are helping offset the effects of the recession.

In Alaska, where the economy is healthy, low interest rates are icing on the cake. Record low rates have made it easier to achieve reasonable investment returns over the last year, and made it easier to buy and sell. Active refinancing kept lenders, appraisers, title companies and others busy.

It was a year of unexpected change. After completing their new building in Midtown, Remax and Dynamic Properties merged.

Bond Stephens & Johnson, Alaska's largest commercial real estate brokerage firm, ended its partnership, with the partners and agents moving onto new firms. After 400 articles over 30-some years, Chris Stephens wrote his last column for the Daily News. He'll now have more time for key clients and family, with turns on the ski slopes and catching fish. Enjoy, Chris, you earned it.

Per E. Bjorn-Roli is a managing member of Reliant LLC, an Alaska commercial real estate appraisal and advisory firm he founded in 2003. He holds the Appraisal Institute's prestigious MAI designation, is a past president of the Alaska chapter and is a state certified general appraiser.

Per E. Bjorn-Roli
Commercial RealestateBy PER E. BJORN-ROLI