Despite Its Remote Location,
Developers Bet on Anchorage

Anchorage's frigid winters and remote location 1,400 miles northwest of Seattle aren't exactly the stuff of developers' dreams. Getting steel and other building materials to Alaska's largest metropolitan region and accommodating the short construction season are just some of the logistical challenges that come with the territory's scenic beauty.

"You really have to work hard to make it work," says Greg Jones, a vice president of business development who specializes in real estate for Cook Inlet Region Inc., an Alaska Native regional corporation. CIRI is developing a 900,000-square-foot retail center in Anchorage. Such retail projects need an edge given that rents are generally in line with many other U.S. metropolitan areas even as retail construction costs can be as much as 40% higher, Mr. Jones adds. CIRI's strategy for its project: cut costs in part by building on well-drained soil that doesn't need expensive gravel fill, as much area land does.

In recent years, more developers have been motivated to find ways to make projects work as they bet on an economy that has enjoyed nearly two decades of steady job growth. Among the drivers: strong energy prices, tourism; and its location as a hub for air cargo and military flights. Federal money for the Native Alaska regional corporations, established by Congress in 1971 to settle Alaska Native land claims, also has given the area a boost, in part because they're providing more health-care services, says Scott Goldsmith, a professor of economics at the University of Alaska Anchorage.

Anchorage is a center of commerce, but for one of the country's smallest states by population -- the U.S. Census Bureau estimates Alaska at 663,661 people for 2005 -- its office market isn't very large. The area's high-end office space would roughly fit into two of Chicago's Sears Towers with room to spare. But the office market is growing: An estimated $300 million in privately funded commercial properties such as office and retail projects were scheduled to start this year in the state, up about 20% from the year earlier, according to the Associated General Contractors of Alaska. Just under half of that is in the Anchorage area.

The economy's prospects are welcome in a market with a history of boom-bust cycles. Following the drop of oil prices in the mid-1980s, about one-quarter of the region's office space was left empty and many properties fell into foreclosure. These days office and warehouse vacancies have dropped into the single digits, sparking some new and even speculative office construction.

With soaring energy prices pushing oil companies to consider new ways to extract oil and natural gas from the state, expanding energy companies are key players in the tight office market. BP PLC's BP Exploration (Alaska) Inc. has hired about 300 additional employees in the state since late 2004, bringing its total number of employees in the state to 1,600. To accommodate the growth, BP is reconfiguring the nine floors that it occupies in its main building in Anchorage, according to BP spokesman Steve Rinehart.

On the horizon -- as either a bonanza or a mirage -- is a natural-gas pipeline that would ship the natural gas in Alaska's oil fields to the lower 48 states. With an estimated construction value of as much as $30 billion, it is expected to transform the economy if it goes forward, says Richard Cattanach, executive director of the Associated General Contractors of Alaska.

But it is far from a done deal. Gov. Sarah Palin is a proponent of a natural-gas pipeline -- though the details need a careful and fair evaluation, says Tom Irwin, transition team leader for Alaska's Department of Natural Resources under the new governor. The proposed pipeline is "a significant 'if' which affects a lot of companies' planning," says Mr. Cattanach.

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