— By Holly Chetwood, Retail Specialist, TOK Commercial —
The Boise MSA retail market had one of its strongest quarters on record with net absorption reaching 559,000 square feet at the end of March of this year. Multiple big-box spaces were backfilled in the first 90 days of the year including the former K-Mart and Gordmans spaces in Nampa as well as both Bed, Bath, and Beyond locations in Boise and Meridian. In addition, the highly anticipated Scheels opened its first Idaho store at Ten Mile and I-84 in Meridian.
Along with a healthy level of net absorption, nearly 100 transactions were recorded, the highest number of deals seen in a quarter since 2021. The top five deals of the quarter were all over 25,000 square feet, however, leasing activity continues to be primarily driven by tenants in spaces below 2,000 square feet. These deals have accounted for 52 percent of transactions over the past 12 months.
As demand stayed high, vacancy continued to tighten throughout the first 3 months of the year. Total vacancy ended the quarter at 4.4 percent, its lowest level in nearly a year. The majority of submarkets are seeing vacancy remain between 2 to 4 percent. Unanchored vacancy saw a slight uptick rising from 4.5 percent at the end of 2023 to 4.7 percent in Q1. However, unanchored vacancy has continued to trend below 5 percent since July 2022.
With the delivery of Scheels’ 315,700 square foot store, construction has already surpassed 2023’s total with 423,800 square feet delivered. The remainder of construction was driven by strip center pad developments at new grocery centers as well as retail spaces in mixed-use apartment complexes. Some notable projects included three strip center pads at Firenze Plaza in Meridian, as well as ground-floor retail spaces at the Tilian Apartments in Caldwell and The Uncommon in the Lusk District. As downtown Boise, downtown Meridian, and downtown Caldwell continue to revitalize and expand, and we see new zoning requires mixed-use projects in these areas, unique retail opportunities will continue to emerge. An example of such a project is Roundhouse Development’s project in West downtown Boise located at Whitewater and Main Streets.
Average asking lease rates have remained flat at $20.00 per square foot (NNN, annual). The Meridian area is seeing the highest rates in the valley, with all Meridian submarkets averaging $28.00 per square foot or higher. Class A rates continued their upward trend reaching a new record high of $28.00 per square foot at the end of Q1. This is up 10 percent from the beginning of 2023.
Class A rates are anticipated to continue to rise considering construction costs are reaching all-time highs. In addition, with mega-projects such as Meta and Micron’s $15 billion expansion breaking ground, the construction industry will begin to see labor shortages grow even more across the state. For instance, ESI reports that there are roughly 2,000 licensed electricians in the state of Idaho with 75 percent of them in the Boise Valley. The Meta and Micron projects alone will require over 1,200 of those licensed electricians. The competition for labor is becoming a major challenge for developers and will likely delay new retail speculative projects, ultimately resulting in supply staying low and lease rates trending high.