Anchorage Daily News

Over the past six years we have experienced a significant upswing in the local commercial real estate market, but the now the party is over, at least for now. While that is not good news, it is a lot better news than it could be.

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Our last significant upswing in the market before this decade was way back in the early '80s, when our market literally boomed. The price of oil was surging to record levels, taxes made real estate a tax shelter investment, and in our youthful exuberance we knew it would never end. It took us about 17 years to recover when the market crashed in 1985.

This time, while the upswing was nowhere near the magnitude of the early-1980s boom, we displayed sensibilities and maturity we lacked back then. The scars from the 1980s are not soon forgotten. Banks and developers have been far more conservative, remembering that no matter how good it looks at the time, things have a way of changing. We are older and perhaps a bit wiser. For example, last year when the price of oil topped $140 a barrel, we knew it would not last and it didn't.

Yet look at what happened since about 2003. About 1.5 million square feet of new office space has been constructed in Anchorage. Most of the space has been absorbed, plus the space that was vacated by tenants moving into the new space. Class A office rates rose from $2.25 to about $2.75 now in existing buildings and over $3 in new buildings.

There is some overhang, with vacancies in some of the new buildings, and we are seeing some space come on the market from companies contracting. For example, the Anchorage Daily News has tightened up its space use and has 28,000 square feet on the market for lease. Otherwise the office market is generally tight, but not as tight as it was a year ago, with the vacancy rate for Class A and B offices up to about 7 percent compared to 3 percent last year.

Retail has been amazing. We constructed two shopping centers: Tikahtnu Commons and Glenn Square. Many national retailers came to Anchorage and many who were here added additional stores. New retailers include Kohl's, Men's Wearhouse, PetSmart, David's Bridal, Walgreens and Target. The Target opening at Tikahtnu Commons had the highest first-day and first-week sales of any Target ever, anywhere. Lowe's, Best Buy, Old Navy, Bed Bath & Beyond and others expanded from South Anchorage with additional stores in north Anchorage.

Glenn Square has struggled. It was conceived and committed to before Target announced it was coming to town and locating in Tikahtnu Commons just down the road. Glenn Square got caught in the backdraft and leasing has been difficult.

Strip malls popped up around town and filled. The new construction has gotten rates of over $3, when the rates were historically about $2.25.

Chris Stephens, CCIM, is a local associate broker specializing in commercial and investment real estate. His opinion column appears every fourth Sunday.

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