Commercial Marketing Update

Lottie Michael, senior vice-president of Berkshire Hathaway Home Services COMMERCIAL  DIVISION,  and I stood at my desktop for an interview on  what’s happening in commercial real estate. Unlike residential real estate, commercial real estate is the best kept secret of what’s happening until a new sign goes up or an  announcement appears in the Alaska Journal of Commerce.  Lottie has been in the commercial business for over 50 years and has in depth knowledge of office, hospitality,  retail and investment properties across the great state of Alaska. Lottie and her colleague, Mike James, have worked  together for 22 years on a handshake—a real rarity in commercial real estate.  

Lottie, how have the national retail trends affected our local retail market?

There definitely has been a national shift in retailing.  It started with Walmart.  They would come into a community and all the small mom and pop’s retailers couldn’t compete. They were truly the gorilla in the room and ate up the small retail space. We are really the ‘Age of Disposal’.  Everything is built to be replaced. The department store is missing, not just here but everywhere.  Macy’s stores are closing all across the country.  Even the off price retailers like Marshall’s can no longer compete.  Just consider the Kroger vs. Albertsons merger?  Is Kroger more successful because they are a dept. store with groceries?  And Target has expanded into super stores with everything PLUS groceries.  Walmart the same thing.

Mike James is of the opinion and I absolutely agree that we need more.  “Online retail has taken a significant percentage of market share from local retailers.  However,  many consumers  want the option to see and touch what they buy.  Bricks and mortar operations will still be here and   must evolve to survive.  Large inventories kept on hand requiring extensive capital will no longer be the norm.  Personal tastes and technology change quickly.  Alaska will be the exception of that rule to a certain extent, with larger inventories required due to length of time needed for transportation by barge, which is the typically the most inexpensive form of shipping.”  

How has the hospitality business changed since COVID?

All businesses have changed because it is difficult to hire employees, whether qualified or in need of training.  During COVID,  Mike and I had four offers on an iconic restaurant from seasoned and experienced restaurant operators who wanted to jump in but they cited the inability to hire staff.  It was sold to a local operator who already had staff and housing in the area.  COVID changed everyone’s mindset on hospitality. There are very few restaurants open for lunch because they can’t staff double shifting. Fast food chains are upgrading their dining rooms or creating a dining atmosphere as a substitute for sit downs.  McDonald’s will deliver your order to your booth.

Give us your take on hotels. Seems like everywhere in mid-town there is a new hotel being built?

Generally speaking, it is accurate that a hotel needs a minimum of 65% occupancy as a year round average. But there are different classes of hotels.  A luxury and full service hotels have a gym, room service, business center and offer a variety of dining experiences.  Then, there are modestly priced full service and a lot of those are not offering daily maid service unless the guest specifically asked for maid service. They can have healthy occupancy but have to cut services due, again,  to lack of staff.  For example, a breakfast buffet can serve scrambled eggs  from a carton rather than an omelet prepared by a line cook. It is interesting to note specifically in Alaska how hotels outside of our major cities are smartly investing in employee housing to insure employees have a place to live.

What’s lacking in Anchorage’s commercial  market place?

More land in every commercial zone from I1 to B3! Anchorage is surrounded by mountains, water parks, and the military.  Only 92% of Alaska’s land is not in private ownership which makes commercial  development challenging despite the fact that  Anchorage is and will remain the commercial center for the state.     

So  what’s the answer? Do you see businesses and commercial activity moving to  the Mat-Su? 

Businesses following rooftops. The progression of Mat-Su residential development fuels economic activity. Once rooftops start then businesses and services must follow.  Medical services is a great example of that. Every medical service a person can possibly need is available in the Valley.

Mike James and I recently sold the Sears Building which will become a 100,000 furniture mart to support the rooftops. Target and Walmart are continuing to expand in the Valley. In addition, two junior box size retailers are also looking at the Valley.   The Mat-Su has a population of 106,000 people and is the second largest in the state and is the size of West Virginia. Sales forecasting is based upon what today is; not what the future may bring. Today’s number of homes; today’s demographics.  Not projections for tomorrow. Once a retailer has made a decision to enter a new market, it will take months for them to decide on a specific site.  After identifying the site, it will take 12 to 18 months for their internal corporate approval. Today, the retailers we’re working with if they select a second generation space ,the fastest they could open would be the first quarter in 2026.  Every national retailer has their own fixture and exact floor plan requirements that any second generation space will need to accommodate.