Office vacancy rates here are somewhat higher than a year ago, but in some cases show a reversal of a steeper climb seen earlier this year, a new survey has found.


Meantime, a separate new survey shows theres a surplus of industrial space here. Observers say a lot of underutilized space must be absorbed before that market will begin looking up.


Overall, real estate experts say, good newsincluding that prime downtown space is in short supplyoutweighs the bad in the office market.


Of the nonresidential real estate markets, office has been the healthiest, says Scot Auble, president of Auble, Jolicoeur & Gentry, a Spokane real estate appraisal firm that completed its most recent vacancy survey late last month.


In general, Auble says, the Spokane office market is more stable than such markets in other Pacific Northwest cities.


Because of a relatively slow construction pace here, Spokane didnt have a lot of new office space come on the market that later couldnt be filled, which happened frequently elsewhere last year, Auble says. Also, because Spokane largely missed the dot-com boom, it didnt have as many large tenants vaporize and leave big spaces vacant because of the technology markets crash.


As a result, Auble says, Spokane is faring very well compared with other cities.


Auble, Jolicoeur & Gentryworking in conjunction with Kiemle & Hagood Co., Tomlinson Black Commercial Inc., and G&B Real Estate Inc., all of Spokanesurveys the office-space market twice a year, in February and October. The survey separates the market into five main areas: downtown, the periphery of downtown, north, south, and Valley.


The overall vacancy rate downtown is just under 13 percent, the new survey says, up from 11 percent a year ago but down from 15 percent in the February survey.


The vacancy rate for prime, or Class A, office space downtown is considerably lower. It has shrunk to a near-full 2.5 percent, which compares with tight vacancy rates Spokane experienced in late 2000 and early 2001, before the recent national recession hit. The Class A vacancy rate was about 8 percent late last year and fell to 6 percent earlier this year.


Auble attributes the tight Class A market downtown to a lack of new, premium office space. While demand for prime downtown space is high, however, overall lease rates in the central business district still arent high enough to make a new high-rise office building pencil out, judging by earlier comments from developers.


Average annual lease rates downtown are at $19 per square footand developers have said that those rates need to be closer to $30 a square foot for a new skyscraper to be viable.


Meanwhile, the older Class B and Class C office space downtown has vacancy rates of 14 percent and 47 percent, respectively. The Class B vacancy rate is up from 11 percent last year, but down from 16 percent earlier this year. The Class C rate has climbed from 36.5 percent last year, but is unchanged from the February survey.


Commercial real estate agents say Class C vacancies are high because tenants in the Rookery Building were cleared out to make way for construction of a high-rise office building on that site. That project, however, now appears to be in limbo (see related story on page A3).


Outside downtown


On the periphery of downtown, office-vacancy rates remain stable. The current vacancy rate there is just under 7 percent, up from 6 percent last year and the same as it was earlier this year.


In the Valley, vacancies are at 12 percent, up from 7 percent last year, but improved somewhat from the 13 percent rate earlier this year.


Real estate experts say the jump in the Valleys vacancy rate since last year is due mostly to a spate of office construction that hasnt yet been absorbed by the market.


Dan Cantu, owner of Cantu Commercial Properties LLC, says vacant space in some of the Valleys submarkets, such as along both Pines Road and the Argonne-Mullan corridor, is being leased at a brisk clip.


He says, however, that activity is spottier in Liberty Lake, which had attracted many tech businesses previously.


The office market continues to worsen on both Spokanes North Side and South Hill.


Up north, the office-vacancy rate has climbed to just under 20 percent, from 15 percent earlier this year and 14 percent a year ago.


Cantu describes the current volume of leasing activity on the North Side as slim to none, though developers have continued to construct new office buildings in that area.


They are going to have to quit building there, Cantu says. Its going backwards. They need to settle down and let some of that vacant space get absorbed.


On the South Hill, the office-vacancy rate is at just under 11 percent, up from roughly 7 percent both earlier this year and a year ago.


The South Hill market includes a considerably smaller amount of office space than the other parts of the Spokane area, so small changes can result in big swings in the vacancy rate.


For instance, Spokane computer-systems provider Windstar Group Inc. moved earlier this year from the South Hill to the periphery of downtown. That left 4,000 square feet of floor space vacant on the South Hill, which is roughly the difference in total vacant square footage between the survey this fall and the one last year.


Auble, Jolicoeur & Gentry surveys medical-office space through the Spokane area separately.


This fall, the medical office vacancy rate is just above 4 percent, a healthy rate that has been sustained during the past two years.


That demand has remained consistently strong, Auble says. Thats one of the bright spots in our economy.


Industrial vacancies


Auble, Jolicoeur & Gentry researched industrial-space vacancies for the first time this fall. Observers arent as optimistic about that market.


The survey breaks down the industrial market into six areas: west, central business district, north, east, valley, and Liberty Lake.


It found an overall vacancy rate of 15 percent in the Spokane area. North Spokane and West Spokane, with vacancy rates of 7.5 percent and 9 percent respectively, had the lowest rates among Spokanes submarkets. East Spokane and Liberty Lake had the highest, at 23 percent and 18 percent.


Auble says a more healthy industrial-space vacancy rate would be at 10 percent or below.


He also points out that the survey doesnt show the amount of space thats underutilized. In some cases, he says, companies are paying rent on spaces theyre not using, because they have downsized but havent subleased that surplus space. If the survey showed underutilized space as well as unleased space, he says, the vacancy rate would be higher.


We have a long way to go before we have leased space fully utilized, Auble says. Theres more recovery that needs to take place before that (vacancy-rate) number starts budging.


Mark Lucas, a sales associate at Kiemle & Hagood, says he and his brother, Tracy Lucas, conduct their own industrial survey at the end of each year. Their most-recent survey, which was completed last January, found an overall average vacancy rate of 8 percent.


Lucas says that survey cant be compared directly with the Auble, Jolicoeur & Gentry survey, however, because the surveys likely include different properties.


The Lucas survey showed a negative absorption of just over 1 million square feet of industrial space, which means that much more additional space was available in early 2002 than a year earlier.


Lucas says he and his brother have been conducting their survey for about 10 years, and this year was the first time they found a negative absorption rate. Typically, he says, the Spokane industrial real estate market absorbs between 500,000 and 1 million square feet of floor space annually.


The Lucases will begin gathering data for their next survey later this month.


In general, Lucas says, industrial space can be more difficult to fill because there are more variables involved with it than with office space.


With industrial space, uses range from warehouse space to manufacturing space. Users typically are looking at factors such as power requirements, ceiling heights, and adjoining bare-land availability.