The Spokane-area office market is strengthening, due to continuing business expansions here and the arrival of some new companies, analysts say.


Recently released results of an office market survey conducted earlier this year by Kiemle & Hagood Co., of Spokane, found the market to be stronger generally than it was last year, with lower vacancy rates downtown, on the downtown periphery, and in several suburban submarket areas.


The activity level in the market was markedly better, says Craig Soehren, a senior property manager and leasing agent for Kiemle & Hagood.


The available inventory now has dwindled to the point that companies needing any sizable amount of space likely will find their options limited, he says, adding, Id say a lack of product is a concern.


Spokane has benefited in the past from a cautious development mind-set that tended to deter overbuilding, Soehren says. But, Now we are possibly being hurt by our lack of aggressiveness in development because a lack of available larger spaces could discourage some companies that are considering moving into the market, he says.


He and Dan Cantu, an associate broker and office specialist at Kiemle & Hagood, say they dont believe market conditions warrant development of a major new downtown office tower yet. They predict, however, that the tight market will prompt more adaptive reuses of older buildings downtown that formerly housed other types of tenants.


Kiemle & Hagood is one of the Inland Northwests largest commercial real estate and property-management companies, controlling about 1.4 million square feet of office space here. Last year it leased or sold about 565,000 square feet of office space.


The companys most recent market analysis showed an overall vacancy rate of 7.6 percent for the nearly 5.4 million square feet of office space surveyed, which encompasses virtually all of the Spokane metropolitan area. That compares with a vacancy rate of about 12.4 percent last year for about 4.9 million square feet of surveyed office space.DowntownThe latest survey showed an overall vacancy rate in the central business district of about 10.7 percent, down from 12.7 percent a year earlier.


The central business district has the largest concentration of surveyed office space, with about 2.2 million square feet, followed by the downtown periphery, with about 1.9 million square feet. Theyre trailed by the Valley, with about 890,000 square feet; the North Side, about 277,000; and the South Hill, about 108,000.


A breakdown of the most recent figures showed vacancy rates of a mere 4.5 percent for downtown Class A space, 9.9 percent for Class B space, 19.9 percent for Class C space, and 8.6 percent for unclassified space. The Class A vacancy rate was less than half the 10.5 percent figure from a year earlier, and the Class B and Class C vacancy rates both were up slightly.


Class A space is in the newest, nicest buildings. Class B space is in older, renovated buildings, and Class C space is in outdated, outmoded structures. Unclassified space, which in the K&H survey includes a hodgepodge of smaller and owner-occupied structures such as the 1889 Building and the Eastern Washington University center, also showed a lower vacancy rate last year than the year before.


Soehren and Cantu say the downtown office market has gotten a boost from companies such as Potlatch Corp. and Travelers Property Casualty Co. that have leased sizable spaces there over the last year. Metropolitan Mortgage & Securities Co.s decision to buy and move into the 18-story, former Farm Credit Banks Building also is a major factor in the bright outlook for the downtown market, they say.


One recent example of the adaptive reuse of downtown building space now occurring is Electric Lightwave Inc.s lease of the former Two Geezers grocery store space in the Sherwood Complex, they say.Outlying office marketsK&Hs market survey showed a vacancy rate of only about 5.2 percent for the downtown periphery, bounded by 14th Avenue on the south, Mission Avenue on the north, Hamilton Street on the east, and Maple Street on the west.


Cantu says the periphery is without a doubt the strongest office submarket in the Spokane metropolitan area, and he adds, I think its going to continue to be the strongest for the foreseeable future.


He notes that Rock Pointe III, Walt Worthys latest addition to the Rock Pointe Corporate Center, and the new Riverfront Office Building have leased up quickly and now are almost full. Walt Worthys newest development project, a planned 240,000-square-foot, five-story office building thats being constructed just east of Rock Pointe, likely will raise periphery vacancy figures somewhat, Cantu and Soehren say, but they add that they expect healthy demand for that new space.


The survey showed vacancy rates of 12.5 percent for the Valley, slightly over 3 percent for the far North Side, and about 6.7 percent for the South Hill. Despite the low figure on the North Side, Cantu says, Its not a deep market, and nothings getting added.


He and Soehren say the Valley figure is higher than that of several of the other areas probably because of some business relocations there, but they consider the Valley office market to be quite strong and believe it will remain so.