Momentum has swung toward resource development in Alaska lately. Big new oil fields are moving closer to development, large-scale mines have entered into the permitting process and the federal administration has signaled via public policy that more development is a priority for Alaska. All of that directly impacts the availability of industrial land.
There are two main zoning classifications for industrial land within the Municipality of Anchorage for private development: Heavy Industrial (I-1), and Light Industrial (I-2).
Prices for industrial land in the Anchorage market typically range between $12-$20 per square foot. Current industrial land prices make warehouse construction almost cost prohibitive for investment development, as the average cost of construction is $175-$200 per square foot, which does not even include the purchase of the building site. The average industrial warehouse lease rate ranges between $.85-$1.25 per square foot for existing structures. The new construction lease rates baseline is $1.35 per square foot, resulting in a loss for investors and their developments in today’s market.
According to the 2016 MOA Industrial-Commercial Lands Focus Group report, the municipality is aware of the scarcity of industrial land, and has begun evaluating market conditions for the industrial uses through 2035.
According to the report: “Anchorage does not have sufficient industrial-zoned land to accommodate the forecast economic growth, even considering the Chugiak-Eagle River land supply. Moreover, industrial lands in the (Anchorage) Bowl face well-documented economic pressures to convert to other uses. This is due in part to land scarcity among commercial and residential land uses.”
When I served on the municipality’s Planning and Zoning Commission in 2017, we developed a Land Use Plan Map that forecast supply needs for future use and development through 2040. The land use plan map identifies lands zoned as industrial in order to reprioritize for commercial use. It also outlines key industrial areas, sanctuaries for industrial use and preservation, while simultaneously encouraging development.
Even with the high construction and land costs, a silver lining exists: the majority of buyers are owner-users. These users do not require the same return on investment as real estate development investors. Owner-users tend to be less concerned with real estate and development costs, as the real estate component is a nominal expense compared with their business operations and profitability.
Companies still need industrial space and are looking to expand are taking another look at Chugiak-Eagle River and the Mat-Su, where land prices are on average are a third of Anchorage Industrial land prices, and Mat-Su does not have the same zoning restriction and guidelines as Anchorage. These locations have other challenges, such as labor shortages and inadequate access to supplies that are not as big of hurdle if located in Anchorage.
We are seeing evidence of increased resource development activity in Alaska: oil and gas companies like ConocoPhillips, BP, and Oil Search have announced new projects and investments, the federal government is moving ahead with opening a small portion of the Arctic National Wildlife Refuge to oil exploration and development, and large mining projects like Donlin Gold are advancing. As large investment from major companies in Alaska continues, supporting subcontractor companies are ramping up to be able to meet the needs of natural resource employers. These companies may now find that land availability in Anchorage - especially industrial - is surprisingly challenging.
Of course, no discussion of land availability in Anchorage is complete without bringing up the Knik Arm Bridge and the connection to Point Mackenzie or expansion to Fire Island. The projects have been political lightning rods in the past, but may need to be re-examined as the state grapples with the challenges associated with another development and construction boom.
Brandon Spoerhase, CCIM, is a lifelong Alaskan, a former member of the Anchorage Planning and Zoning Commission. He specializes in commercial and investment real estate and is the Broker for BSI Commercial Real Estate.
The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com.