Spokane-area office space vacancies have risen, and rents might be lower than some landlords say, although the market has remained active through the recession, so far, sources say.

A fall survey of competitive office space, conducted by the Spokane real estate appraisal firm Auble, Jolicoeur & Gentry, shows the vacancy rate for Class A, or premium, office space downtown was 8.9 percent, up from 7.3 percent a year earlier. The overall downtown vacancy rate, which includes mid-priced Class B and lower-rent Class C space, was 14.8 percent, up from 13.5 percent a year earlier and the highest fall rate since 2005.

The increase in office-space vacancy rates was more pronounced in Spokane Valley, north Spokane, and the downtown periphery, the survey shows.

Karen Meek, a partner at Auble, says she had thought the overall office vacancy rate would be higher than the survey shows.

Some space that's reported as occupied is being underutilized, Meek says.

"A lot of big companies have space available for sublease that's not reported as vacant," she says.

Bank of America, for instance, is looking to lease out 12,800 square feet in its 75,700-square-foot call center facility at 1616 S. Rustle Road, in west Spokane, Meek says.

She says vacancy rates might continue to rise as leases expire on underused space, although she adds that in some cases tenants are looking to expand.

"I expect the rate is going to be up slightly next March," she says, referring to an annual spring survey that Auble also conducts.

The average reported Class A rent for new leases and lease renewals dipped slightly to $24.17, the fall survey shows, down less than 2 percent from $24.58 last fall, after having risen 21 percent from $20.28 in the fall of 2007. Overall Class A office rents downtown were $19.56, up from $18.67 in the fall of 2008, and the highest since 2006, when a fall survey showed overall rents were $19.88.

Meek cautions, however, that some landlords who provide information for the survey might be reluctant to report fully a downward trend in rents, and actual rents likely are lower than the survey shows.

Nationwide, office rents fell 8.5 percent in the third quarter, compared with the year-earlier period, and the overall U.S. vacancy rate climbed to a five-year high of 16.5 percent, the Wall Street Journal reported in October, which was about the same time the survey here was being conducted.

Mark McLees, an agent with Spokane-based commercial real estate brokerage NAI Black, says lease rates are moving downward in most parts of the office-space market here.

"We're not seeing $24 per square foot leases downtown," now, he says, adding that typical recent lease rates for Class A space there have been in the range of $18 to $20 a square foot. He also believes some landlords have been underreporting negotiations with tenants that have resulted in lower rents.

The office market has seen a lot of movement as various businesses have grown or contracted, McLees says.

"Businesses are relocating because they are expanding or looking for better deals," he says.

Other office tenants have sought to renegotiate their leases in light of the weak economy, McLees says. Tenants increasingly are asking for shorter leases or a cancellation clause, although few landlords are giving in to those requests, he adds.

The Class B vacancy rate was steady compared with last year, at 19 percent for both years. Class B rents overall averaged $15.86, up from $15.74, following steady modest annual increases from $14.85 in 2004.

The survey shows that the Class C office vacancy rate had the steepest increase downtown, rising to 13.1 percent, from 4.4 percent a year earlier.

"People are taking the opportunity to move up," McLees says, adding that Class C space often can't compete with Class B space.

"It's difficult for Class C landlords to recoup expenses if they decide to do improvements," he says.

In Spokane Valley, vacancy rates leaped to 21.9 percent, from 13.3 percent a year earlier, the survey shows. The latest fall survey includes Spokane developer's Walt Worthy's new 250,000-square foot Riverview Corporate Center, which opened after the 2008 survey was conducted and remains largely vacant.

Jack Marr, director of leasing for Worthy Enterprises LLC, of Spokane Valley, says about 22 percent of the available floor space at the Riverview Corporate Center is leased—far below original expectations.

"We had hoped to be around 40 percent occupied after the first year," Marr says.

The company is holding lease prices there at a premium level of $21 to $24 a square foot, although Marr says it offers generous tenant-improvement allowances.

"We are our own general contractor and include tenant improvements in the (lease) deal," Marr says.

The survey shows overall office rents in Spokane Valley averaged $14.58 a square foot, up from $14.30 a year earlier.

In the downtown periphery, the vacancy rate rose to 10.7 percent, up from 7.6 percent a year earlier, to hit its highest level in 10 years, Meek says. New and recent rents, though, climbed a bit to $16.20, up from $16.02 a year earlier.

In North Spokane, the fall survey showed an office vacancy rate of 13.3 percent, up from 9 percent in the fall of 2008. The average rent was reported at $16.31, slightly higher than the year-earlier average of $16.09.

Because of the lower level activity in the office space market, landlords are becoming reluctant to foot the bill for certain tenant improvements and are asking tenants to obtain Small Business Administration loans for certain improvements in exchange for free or reduced rent, McLees says.

"That makes a better tenant-landlord partnership and reduces risk to the landlord," he says.