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Anchorage office vacancy rate shot up last year amid economic downturn

  • Author: Annie Zak
  • Updated: January 18, 2018
  • Published January 17, 2018

The vacancy rate in Anchorage's top-tier commercial office space market nearly doubled from 2016 to 2017, an aftershock of job losses in the oil and gas sector and industries closely tied to it, according to numbers presented at a real estate industry event.

Some landlords are offering more and larger concessions to tenants, such as more months of free rent at the start of a lease or agreeing to put more money toward office improvements, said Mark Filipenko, owner at Bond Filipenko Commercial Properties in Anchorage.

"I think just primarily white-collar jobs, oil- and gas-driven jobs, engineers — it was a contraction within the oil and gas sector primarily," Filipenko said. "It's a big impact in Anchorage. We saw those layoffs happen and they translated into vacancies."

Prime office space in the city — known as Class A space — had a vacancy rate of 14.6 percent in 2017, up from 7.9 percent in 2016, Filipenko said in a presentation last week at the Building Owners and Managers Association of Anchorage's annual commercial real estate forecast. He doesn't recall the last time the vacancy rate was as high. In 2015, he said, the rate for this type of space was about 5.8 percent.

The vacancy rate at the next tier — office space with a smaller footprint and generally lower-end than Class A — was 11.3 percent last year compared to 7.7 percent the year prior, Filipenko said.

Marc Dunne, an associate commercial broker with Jack White Real Estate, said landlords are getting more aggressive but still generally don't want to drop their rates. It's still hard to find space for tenants, he said, because many of the vacancies around town are large properties and "there's just not large tenants floating around" right now.

"The bigger blocks are, from what we see, oil-related," Dunne said. "Big oil firms downsizing, and as a result you get big law firms that downsize, and engineering firms."

Bill Popp, president of the Anchorage Economic Development Corp., said it's mainly job losses in the professional and business services sector — which includes architects, engineers, lawyers, accountants and more — that have driven the office vacancy rate higher during Alaska's economic downturn.

Anchorage employment in that industry was down about 3 percent last year compared to 2016, according to the Alaska Department of Labor and Workforce Development. Jobs in professional and business services had been declining for several years.

"We're back down to right around 2009 employment levels, which is right where the bubble began," Popp said, referring to professional and business services jobs in Anchorage.

John Opinsky, a broker and co-owner at commercial real estate firm Frampton & Opinsky, said he noticed some sophisticated tenants last year negotiating to reduce rents.

"We had several opportunities last year where people said, 'Hey, knock my rent down a little bit?' And they'd extend (the lease) for three years," said Opinsky. Getting tenants to add more years to their lease terms right now is an attractive offer for landlords, he said.

Though his firm has vacancies in buildings that haven't had empty spots for a long time, Opinsky said the sky isn't falling, as some tenants seem to think it is.

"I think everyone thinks the market was really dead," he said. "We were really busy last year."

While the Class A vacancy rate in Anchorage is close to the national average, Filipenko said, it's still high for Alaska's largest city.

"We're not used to seeing it like that," he said.

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