On Spokanes North Side, office-building owners are taking aggressive steps to fill an increasing amount of vacant spacewith some offering six months of free rent. In Liberty Lake, a spate of new office space came available as the tech sector softened last year and hasnt been absorbed yet. Downtown, an entire building is empty, awaiting demolition for a new office tower, the plans for which are now on hold.


Office vacancy rates are rising in every part of the Spokane market, according to a fresh survey by the Spokane real estate appraisal firm Auble, Jolicoeur & Gentry.


The overall vacancy rates downtown and on the North Side both are around 15 percent, compared with less than 10 percent a year ago, according to the survey, which reflects rates as of February. In the Valley, vacancies are approaching 13 percent, up from about 8 percent a year earlier. In the downtown periphery and on the South Hill, vacancies also have edged up, though far less dramatically.


Also, the amount of empty space is even higher than what those numbers indicate, real estate observers say, because many tenants are trying to sublease, space that theyre no longer using.


Still, they say, things could be worse.


The information is surprisingly positive in light of the national recession, says Scot Auble, president of Auble, Jolicoeur & Gentry, which completed its most recent vacancy survey last week. Weve fared the recession better than other markets in the region.


Vacancy rates for premium, or Class A, office space downtown actually have improved since last fall, the survey says. Also, while vacancies have worsened, average lease rates still have risen slightly.


Dan Cantu, president of Cantu Commercial Properties LLC, of Spokane, says the falloff of prospective tenants and the downsizing of tenant spaces wasnt as dramatic as he had thought it would be following the terrorist attacks of Sept. 11. He says he still considers most parts of the Spokane office market to be healthy.


Looking ahead, he says, I dont think itll get any worse.


Craig Soehren, a leasing specialist for Spokane-based Kiemle & Hagood Co., says hes seeing more potential tenants surface this spring, following a quiet fall and winter, but worries about the increasing number of tenants that have downsized and now are looking to sublease out space theyre no longer using. Such tenants often offer below-market rates or other incentives to sublease their space, making it more difficult for building owners to get full market rates for other vacant space.


Overall, Soehren says, There isnt a lot of depth to any part of the market right now. All in all, its going to be a flat year.


Downtown


In the Auble, Jolicoeur & Gentry study, 14.9 percent of the 2.6 million square feet of office space surveyed in downtown Spokane was vacant. Thats up from 9.7 percent in February 2001.


The study categorizes space downtown as Class A, Class B, and Class C, depending on the age, location, and quality of the office space. Class A, at the top end of the market, denotes premium space, while Class C is older, perhaps outdated space.


The Class A market is the healthiest of the three downtown markets, with a 5.7 percent vacancy rate.


Thats up from 2.6 percent a year earlier, but down from an 8.4 percent vacancy rate last October, following the terrorist attacks and the downturn in the U.S. economy. The Class A market downtown was the only one here for which vacancy rates have improved since October.


Annual average rental rates for Class A space have crept up slightly, to $18.71 a square foot, from $18.40 a square foot, the survey says.


Both Cantu and Soehren say large office spaces15,000 square feet of floor space or morenearly are impossible to find downtown, as has been the case for the past few years.


Cantu adds, The flip side of that is that there havent been a lot of tenants looking for big chunks of space.


The Class C vacancy rate has soared, to 47.4 percent this year from 26.5 percent a year earlier. At the same time, annual average rental rates for such space have fallen to $7.64 from $9.68 per square foot.


Soehren says one reason for the dramatic rise in the Class C vacancy rate is that the Rookery Building, which is situated on part of the site for a proposed new office tower, is completely vacant now.


A group of Spokane developers has proposed construction of that $50 million, 19-story office tower at the southeast corner of Riverside Avenue and Howard Street.


Work on the project initially was expected to start this year, but those plans have been pushed back at least until early 2003.


For Class B space, the vacancy rate has risen to 16.4 percent from 12.9 percent, with average rental rates up slightly, to $14.93 from $14.60 a year earlier.


North Side


Of the office markets outside of downtown, real estate observers say the North Side has the largest oversupply of floor space.


The survey reports a vacancy rate of 15.1 percent on the North Side, compared with 9.1 percent a year earlier. Reported annual average rental rates, however, have increased to $13.45 a square foot from $12.83.


More of the subleasing efforts are taking place on the North Side than in other parts of Spokane, Soehren says. If empty floor space thats being offered for sublease were included in the mix, he says, the vacancy rate would be about 10 percent higher than that shown in the survey. Also, the average rental rate likely would be lower.


Cantu says North Side office landlords are becoming more aggressive in their attempts to lure tenants, offering heavy incentives in some cases. At one North Side office building he markets, the building owner is offering six months of free rent to any tenant that signs a 3 1/2-year lease for 2,000 or more square feet of office space, Cantu says.


Other building owners are offering similar incentives, he says.


He says he hasnt seen such aggressive efforts to lure tenants since the 1980s, and adds that the inducements are less common in other parts of Spokane.


On the periphery of downtown, the study reports a 6.6 percent vacancy rate, up from 5.4 percent a year earlier. Average rental rates are $15.37 a square foot there, up from $15.15 a year earlier.


That area still is popular among a lot of prospective tenants because of its proximity to downtown and the availability of free parking, Soehren says.


In the Valley, the study says, the vacancy rate is 12.8 percent, compared with 7.9 percent a year earlier.


Cantu, whose offices are located in the Valley, says a lot of office space in Liberty Lake has become availableeither through new construction or because of companies downsizing therethis past year and has yet to be absorbed. Still, he says that in other parts of the Valley, large amounts of floor space are hard to come by.


Average rental rates are at $13.05 per square foot in the Valley, up from $12.75 a year earlier.


In the South Hill office market, which is relatively small compared with markets in other parts of Spokane, the vacancy rate is 7.2 percent, up from 6.5 percent. Average rental rates are $15.94 per square foot, up slightly from $15.71 a year earlier.