Close quarters: higher-end office space is in demand, but in short supply. New construction will change that.

[ILLUSTRATION OMITTED]

Searching for higher-end office space in Anchorage? Good luck. "There wasn't any multi-tenant office space constructed in Anchorage between 1986 and 2003," said Chris Stephens, a partner in Bond, Stephens & Johnson, one of the city's largest commercial real estate brokerages.

"Since then, we've added a number of new buildings-Centerpoint at 90,000 square feet, Alaska USA (Federal Credit Union) at 92,000 square feet, and the ASRC building at 192,000 square feet, for example," he added. "But we still have a tight market."

Anchorage currently has less than a handful of sites offering 5,000 square feet of class A space, according to Stephens, and the vacancy rate stands at less than 1.5 percent. The rental rate for existing class A space is $2.55 to $2.75 per square foot, Stephens added, "and the new buildings are in the $3 to $3.50 per-square-foot range."

Stephens said that with the construction of newer office space, many tenants moved out of their older buildings and occupied the newer ones.

"There are questions, though, as to where the market will go from here. It's a very dynamic market. If a building owner has to cut rates to get tenants, that can ripple through the whole market," he said, "and no one is building class B space because construction costs are so high."

BANKING ON CONSTRUCTION

Several developers, however, are banking on a continued strong commercial space market. JL Properties and Ruby Investments Inc. are erecting two new midtown commercial buildings with space for multiple tenants-JL Tower in the Centerpoint Business Park, and the new mixed-use, retail-office building on C Street between Northern Lights and Benson boulevards.

"We looked at the rental market," said Leonard Hyde, a partner with John Rubini in JL Properties and president of the firm. "Anchorage has the lowest class A vacancy rate of any significant market in America that I know of. It's pretty unique to have a market so tight in terms of big blocks of space."

JL Properties invests in developments in Alaska and Outside, and Hyde said JL saw an opportunity to build class A space in Anchorage because the vacancy rates here are so low and the rental rates are much higher.

"There is one building besides ours under construction now. We're adding 300,000 square feet and they're adding 100,000 square feet, but we see the market continuing to grow and it should absorb both buildings easily," Hyde added.

JL Tower, the $60 million, 14-floor building currently under construction, is scheduled for completion in March 2008, and the primary tenant will be Chugach Alaska Corp.

"Chugach is an investor, as well," Hyde said, "along with Washington Capital Management, a Seattlebased manager of union pension funds. As a result, this project is 100 percent union."

[ILLUSTRATIONS OMITTED]

Chugach will occupy just over a third of the space at more than 100,000 square feet, Hyde added, and he said almost half the building is now under lease.

"It's on the high end of class A," Hyde said. "There's a fairly broad definition of class A space in Anchorage, but this building is clearly at the upper end."

Hyde added that the building will be the first private LEED (Leadership in Energy and Environmental Design)certified building in Alaska. To gain this eco-friendly, green-development certification cost the owners almost $1 million more to build, according to Hyde, but it will have a higher energy efficiency, higher quality air exchange, "and we're using recycled materials," he said.

"We think this building is needed because the technology will be today's rather than dating from the early '80s, when most of the other office buildings went up.

"We also develop and own our buildings long-term," Hyde said, "and that's a definite benefit to tenants. We don't build and turn over the keys."

'VENTURE' AHEAD

Venture Development Group LLC is involved with many commercial real estate investments throughout Anchorage.

"We're wrapping up a $12 million project for the Aleutian Pribilof Island Association and the $63 million rental car center at the Ted Stevens Anchorage International Airport," said Mark Pfeffer, a founding member of Venture Development Group and a principal at kpb architects. "We're also working on the Atwood Building parking garage and the Anchorage convention center with JL Properties. At kpb architects, we have all sorts of things going on, including the expansion to the primary care center at the Alaska Native Medical Center and schools around the state.

Augustine Development LLC, a subsidiary company of Venture Development Group, recently purchased three lots in downtown Anchorage that used to house the Alaska Experience Theatre, a vacant office building and a hotel on Sixth Avenue, between G and H streets. Pfeffer said his company is looking for an investment project, which could be retail or office, for these lots.

"We know Anchorage is growing, and we're trying to ascertain how much space is needed. Is it enough to justify moving forward with something," Pfeffer said.

THREE NEW MALLS

Commercial construction outside of office space is forging ahead at a fast pace. In addition to the new convention center and parking garage going up in downtown Anchorage, there are three new malls under construction or in the planning stages-Glenn Square in Mountain View, Tikahtnu Commons in Muldoon, and a newly proposed mall on the new C Street extension south of Dimond Boulevard. Target is set to anchor the malls in Muldoon and South Anchorage.

Glenn Square will have approximately 200,000 square feet of retail space-45,000 square feet of shop space and 50,000 square feet of office space plus parking, and is anchored by Old Navy, Petco, Michaels and Best Buy.

[ILLUSTRATION OMITTED]

The new mall in south Anchorage, according to preliminary plans submitted to the Municipality of Anchorage recently, would be 370,000 square feet of retail space. Target purchased the 36-acre site earlier this year, and the application to the city said Target would seek additional developers and retailers to fill out the space. This Target store itself could open its doors in October 2009.

Tikahtnu Commons, currently under development by Cook Inlet Region Inc. and Browman Development Co. of Oakland, Calif., is scheduled to contain about 950,000 square feet of retail space, said CIRI spokesman Jim Jager. One of the anchors of Tikahtnu Commons, Jager said, will be Target-the first of the chain to open in Alaska.

"We're anticipating a total of 60 to 75 businesses in the mall," Jager said. "Target will be one of five anchor stores, but it's the only one we can announce just yet. We do expect to have 12 to 15 major retail stores, and we'll have 16 acres of green space."

Target is schedule to open this first store in the fall of 2008.

Jager added that CIRI is close to final negotiations with an entertainment entity for space in the mall, and added that his organization is also negotiating with several restaurants.

"There are no hotels planned for the site at this time," Jager said, "but we aren't going to close the door on that idea.

"This mall will raise the bar in Alaska," Jager said. "Both CIRI and Browman will be long-term owners, so we're motivated to pick tenants more carefully. We'll take better care with both the development and the tenants and that will make the mall more successful in the long run."

CIRI MOVES FORWARD

In addition to the mall, Jager said CIRI has a few other projects in the works. One is the Fire Island wind farm-to help produce energy.

"We also have an additional site, and we're trying to decide what would be the highest and greatest use for this land," Jager said. "We could do another mixed-use project. That's the way many cities are going now. It's very attractive, and it has the 24-hour component. If you have people living in the area as well as shopping there, it makes economic sense and helps the security of the area. If gas goes over $3 a gallon, anything we can do to eliminate driving will be good."

MIXED-USE HOUSING

Experience with the demand for housing in mixed-use areas in Alaska is very slim, however, because very little of it has been built. In downtown Anchorage, there are a few buildings containing condominiums or apartments and retail space.

Mixed-use housing, becoming more and more popular elsewhere in the Lower 48, promotes a strong residential component to an area combined with shopping, civic facilities, recreation and employment to stimulate the vitality of an area of town. This helps keep vehicle traffic down and promotes neighborhood safety and pride.

Often an integral part of mixed-use housing and the revitalization of a neighborhood is mixed-income housing, which incorporates market-rate housing with lower-income housing in a mix that is often invisible to the street.

Cook Inlet Housing Authority, in partnership with developers Mark Pfeffer, Jerry Neeser and Jeff Koonce, recently broke ground on the first mixed-income housing development, Grass Creek Village, at Anchorage's Creekside Town Center in Muldoon. This $25 million project will result in 80 townhouse units, and its creators anticipate adding retail development to the housing in the future.

HOME SALES GOOD

The single-family housing market in Anchorage, on the other hand, has a long track record of surges and dips. Today's market, though, appears to be bouncing right along on a relatively even keel.

"My impression is that it's going quite well," said Art Clark, president of the Anchorage Board of Realtors and an associate broker/vice president at Real Estate Brokers of Alaska. "There have been approximately 3,000 properties closed in the Municipality over the last 12 months. In the previous 12 months, about 3,100 closed. The market was very, very hot then," he added.

In the Municipality, Clark said, there are 1,189 single-family homes currently listed, and that includes new construction.

NEW HOME CONSTRUCTION SLUMPS

"This year," Clark said, "new housing construction is way down."

According to city records over the past seven years, housing construction peaked in 2003 with a value of new construction permits at more than $90 million. In 2007, the construction value of new homes dropped to $44.6 million.

"Home values," Clark said, "are continuing to climb-they're up 10 percent to 15 percent over the last two years. The average sale price about six months ago was $280,000 to $290,000. Now, it's about $300,000.

"The big problem we have now is entry-level homes for young people. The low end for new construction is $234,000. Young people simply can't get in at that price."

Clark added, speaking as Art Clark and not as president of the Anchorage Board of Realtors, he sees many big changes that are going into the rewrite of the city's Title 21 will make it even more difficult for young people to get into newly built homes.

"The cost to the developers will be very, very high," Clark said. "The availability of land is also a huge issue." Over the past several years, builders and developers have had to deal with a serious shrinkage of available land within the city and are eyeing the land at Point MacKenzie across Knik Arm. The proposed bridge would open that land to development.

"Until someone flattens out the mountains, our bridge to nowhere isn't really a bridge to nowhere."

RELATED ARTICLE: Kiewit takes on projects statewide.

BY GAIL WEST

[ILLUSTRATION OMITTED]

Cranes, concrete trucks and pneumatic hammers have been busy all across Anchorage this summer. Other parts of the state haven't been far behind.

"We're doing a lot of work for the University of Alaska Fairbanks," said Kevin Welker, Alaska area manager and senior vice president with Kiewit Building Group.

One of Kiewit's signature projects in Alaska today is the UAF School of Fisheries and Ocean Sciences Facility at Lena Point near Juneau. The facility will house office and classroom space, as well as laboratories.

"The building is more than 30,000 square feet with classrooms and teaching labs," Welker said. "We're building under a Construction Manager at Risk contract, and completion is set for fall of 2008.

"Project cost for Kiewit is $17 million, and total project cost is approximately $26.2 million," Welker added.

Another of Kiewit's projects is the UAF BIOS (biological sciences) facility in Fairbanks.

While Kiewit is involved in pre-construction for the BIOS building, UAF is continuing to amass the necessary funding to complete this 110,000-square-foot facility. The projected construction cost is $70 million, and the total project cost is approximately $105 million, according to UAF.

Closer to Anchorage, Kiewit is building a 60,000-square-foot, $30 million large airframe maintenance hangar and an 180,000-square-foot, $75 million, dual-bay C-17 maintenance complex under design-build contracts for Elmendorf Air Force Base. Both projects are required for the incoming Stryker Brigade and C-17 mission aircraft.

Kiewit's most recently awarded project-late June-is the Veteran's Affairs outpatient clinic and regional office building in Anchorage. According to Welker, it's 190,000 square feet and is adjacent to the Elmendorf hospital. Total construction cost is $66 million, and Kiewit is joint ventured with Cornerstone Construction on the project.

"We're excited about all the building opportunities in Alaska," Welker said. "We pride ourselves on customer satisfaction, and we look forward to continuing our long history in the state."