There has been much anecdotal discussion lately of Californians fleeing high-cost, high-density, high-traffic living for greener pastures, especially as COVID-19 made working from home a possibility for California’s high-tech workforce. This trend is not just a rumor for the residents of Idaho. Idaho is the second-fastest growing state in the nation, and Californians make up nearly 46 percent of a new population influx that the state has experienced over the past five years.
What is driving so many people from the Golden State to the Gem State, and what does this mean for commercial real estate prospects in Idaho? REBusiness sat down with Matt Mahoney, managing principal, Lee & Associates Idaho, to answer those questions.
Remote Work and Booming Growth
COVID-19-related remote work is driving people to areas where there is a high quality of life, natural beauty and an abundance of outdoor activities. Matt Mahoney notes that because Idaho’s population is lower to start with, the state can easily find itself at the top of lists of fast-growing states. Still, there is real growth in Idaho’s population (increasing 17.4 percent since the 2010 census).
However, Mahoney believes there is a lag between the exploding population and the commercial real estate world, though this delay is changing even now. “Because it is very public data that Idaho is one of the fast-growing states in the union, capital is now following. It has flooded into this area from all parts of the country, and it is chasing a yield. Historically, our yields have been a little higher than those of nearby states along the Pacific Ocean.”
The Business of Idaho
Mahoney notes several attractants: a balanced state budget, moderate taxes and fiscally conservative practices (especially when compared with California) that make Idaho (and Boise in particular) increasingly popular with a variety of companies.
“It’s really good to see manufacturing relocating to this area, because historically we haven’t had lot of manufacturing jobs here — other than technology-based manufacturing. In that technology sense, Idaho has HP’s printer division and Micron (which has their corporate headquarters here). But traditional machine-based manufacturing (including auto manufacturing) historically has not been in this area. We are seeing some of those more blue-collar jobs relocate from other cities. That primarily has to do with our lower cost of utilities and lower wages than in some surrounding states.”
Corporations moving to Idaho (especially those moving their corporate headquarters) mean increased competition for office space, retail and industrial. “The amount of capital coming into Idaho is unprecedented,” Mahoney says.
Breakdown by Asset Type
Multifamily has very little vacancy and there’s very little turnover in that area. Low unemployment means that rent rates have been able to steadily rise.
Industrial markets in Idaho are very hot but underbuilt for the interest that they’ve been generating of late. New developers are entering and building industrial properties quickly and with good reason — the asset class has a vacancy level of less than three percent. The only slowdowns for industrial right now, according to Mahoney, are the need to obtain permits and the fact that the cost of construction continues to rise.
Office is returning to normal-ish, though it has been impacted to a degree by revised work-from-home policies. Mahoney sees changes on the horizon: “I think the pendulum is swinging. The everyone-works-from-home mindset was one extreme, but we expect more people back in the office by the end of the year. Still, there are going to be some modifications in the office layout and how employees interface with each other.” Architects and engineers are working on changing design, layout, air conditioning, mechanical systems, etc. to meet the new normal of office space (and to anticipate future needs, including potential resurgences of COVID-19).
Where and How Long to Expect Growth
The Boise metro area (or the Treasure Valley) includes Ada, Boise, Canyon, Gem and Owyhee counties. The Treasure Valley houses the majority of the state’s population influx (especially from states like California, Oregon, Washington, Arizona and Texas), but the metro area is also drawing residents from within Idaho itself (especially Eastern and Northern parts of the state). And Boise area suburbs will continue to benefit from the infusion of people.
In the eastern part of the state, Idaho Falls is Idaho’s second largest city and boasts Idaho Laboratories. In the Northwest, Coeur d’Alene is attracting residents, but not necessarily new companies.
How does all this growth affect commercial real estate valuations? “Over the last five years we’ve had a very slow compression of cap rates. As interest rates have fallen and as opportunities for deployment of capital have happened, the availability of product has dropped precipitously.”
Can this growth continue unabated? Probably not. Mahoney thinks this extremely rapid infusion of people is temporary, but that Idaho has become much more of household name. The net in-migration may slow, but the draw will continue for quite a while and companies bringing jobs to the area may mean that the next generation and new investors in the area will be able to reap a long-term reward for being in Idaho.