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Commercial property prices hold up despite new construction

Monica Gokey
Erik Hill

Anchorage logged $631 mil- lion in new building permits in 2013, a 40 percent increase over 2012 construction, according to data presented by architect Brian Meissner at the Building Owners and Managers Association's annual commercial real estate forecast luncheon Friday.

"2013 was as big as the years before the bust," Meissner said.

Major construction projects under way around the city include hotels, office buildings and retail space.

Commercial vacancy rates throughout the city generally went down in 2013, said Brandon Walker, an associate at Pacific Tower Properties in Anchorage. Retail vacancy rates are just more than 4 percent, lower than the national average of 7.7 percent, he said.

National retailers that set up outlets in Anchorage in 2013 included cosmetics giant Sephora and designer Michael Kors. Walker said a number of other national brands have plans to open in here in 2014: Cabela's, Bass Pro Shops, Hard Rock Cafe, Texas Roadhouse and Tilted Kilt Pub and Eatery.

Industrial vacancy rates fell below 2 percent in 2013, Walker said.

Speaking of the city's available commercial properties, Walker said, "Much of the inventory right now is plagued by obsolescence. This is limiting the already limited supply of properties."

Fortunately for the city's commercial tenants, Walker said, they haven't seen an upswing in rents as a result of the decrease in vacancies.

In his forecast for next year, Walker predicted industrial vacancy rates will continue to trend downward until prices or construction costs justify new development.

Other items noted by the luncheon's four keynote speakers include:

Cuts to local and federal government jobs are expected to increase the office vacancy rate. Long-term vacancy and leasing prices are expected to remain stable, with an upswing toward the end of 2014 to coincide with completion of some construction projects.

National brands are forecast to continue setting up shop in Anchorage.

New school construction in Anchorage is waning but renewal projects are on the rise.

Strong growth in construction in the Mat-Su region is expected to continue as people keep moving there.

The federal government's sequestration affected military construction projects in Alaska. Little new military construction is expected in 2014.

As interest rates go up, property buyers can expect to have less financial leverage, higher down payments and lower profit margins than in recent years.

As it becomes more expensive to borrow money, some property owners may choose to hang on to property longer, resulting in less turnover in the market.

As the banking industry continues to consolidate, there will be fewer lenders so well-qualified borrowers will have an even greater advantage than borrowers with less financial wherewithal in accessing capital.