Real estate (Commercial).(2007 Alaska Forecast)

2007 is likely to become the year that office and industrial real estate lease rates in Anchorage finally recover to early 1980s level.

Property values and lease rates for office buildings and industrial facilities in Anchorage have been in steady recovery with a noticeable run-up in thelast couple of years. Prices and rates are now 50 percent and more above the pre-melt-down market--but only in absolute dollars.

The consumer price index for Anchorage has increased more than 60 percent in the same period; indicating that the market still has a bit further to go to recover to historic highs in real dollars--even further if one takes into consideration recent spikes in direct costs. Recent rate increases for gas and other utilities and increases in maintenance and remodeling costs directly impact realized-rents and property values.

In 2007, office and industrial property rents will continue to rise, as vacancy rates continue to decline and costs increase. Businesses will be looking to realize increased efficiencies from their facilities to offset increasing occupancy expense.

Due to the tightness of the market, businesses contemplating relocation or expansion will want to start early to allow time to locate the most efficient facilities and to adequately evaluate alternatives with respect to potential fit-up costs and direct and pass-through expenses in addition to base rent.

Gil Kruschwitz, Broker, Business Properties of Alaska

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