Long-delayed Meridian Town Center to break ground this year
There is a visible upside to the Boise retail market as we begin 2011. Major employers such as Micron Technology, Hewlett-Packard and Albertsons seem to be holding their own after some layoffs in recent years. A number of national retailers are considering smaller store footprints, which has led them to consider smaller markets like Boise. And pedestrian friendly downtown Boise endured the economic downturn reasonably well, remaining an employment and cultural center that’s home to dozens of local shops and other small businesses. In addition to art galleries, restaurants, coffeehouses, jewelers, wineries, salons, apparel shops and gift shops, national tenants such as The North Face, Anthropologie, Urban Outfitters and Office Depot are well located in the city.
After a brutal 2009 and soft 2010, the Boise retail leasing market is showing signs of recovery, despite that the greater Boise area posted negative absorption of about 100,000 square feet last year due to a few large move outs. One long-delayed major lifestyle retail project is moving ahead and is a positive sign that confidence is returning to the market. After a 3-year delay, CenterCal Properties is breaking ground later this year on the 90-acre mixed-use Meridian Town Center in the growing submarket of Meridian. The $200 million project, on the north side of Fairview Avenue just east of Eagle Road, will include 500,000 square feet of retail and restaurant space, including an abundance of apparel and entertainment tenants. Also planned are plenty of green spaces to enjoy the stunning local vistas, including ponds, recreational facilities and pedestrian trails. While the project will add fresh retail product to the market, the retail real estate community is concerned that its tenants will threaten the viability of established retailers in the market. With the exception of Meridian Town Center and a few build-to-suit projects, new construction is minimal due to high land prices and low rents. It is unlikely that scenario will change in the next few years.
Meanwhile, leasing activity is picking up on existing Class A retail spaces, and retailers who survived the economic crunch are starting to see light at the end of the tunnel. Although they are aggressively negotiating lower rents with landlords, they are at least committed to staying in the market for the long haul.
National retailers Dick’s Sporting Goods and Hobby Lobby executed large deals in 2010 in Meridian’s CentrePoint Marketplace. Dick’s leased 46,000 square feet in a site vacated by another sports retailer and Hobby Lobby took a 52,000-square-foot space. Other large vacancies were filled when PetSmart absorbed 28,000 square feet on the site of a former movie theater across from the successful Boise Towne Square Mall, which is just west of downtown. Also, Northwest Animal Companions (NAC) leased 67,000 square feet in a former Max Foods space in Glenwood City Center in Garden City, just north of Boise. NAC is using the facility for its thrift department store concept, Re-Style, and will use proceeds to support its non-profit animal welfare/adoption activities.
Additionally, a number of retailers are showing interest in spaces in and around Boise Towne Square, including Kohl’s, Nordstrom Rack, Party City and buybuy Baby. J.Crew has already confirmed it will open there later this year, while Ulta Beauty plans to occupy a space near the Best Buy store atTreasure Valley Marketplace in Nampa.
In general, good grocery-anchored centers and other strong retail locations with good fundamentals continue to do well in the market. In fact, two grocery stores are headed downtown, including one high-profile organic grocer and, after years of delays, plans for the area’s first Whole Foods have been finalized in the form of a 35,000-square-foot store at Front and Myrtle streets. The store is being built next to a new Walgreens that’s slated for the same intersection. A second grocer, Henry's Market, is pegged for a site at 15th and Idaho streets with a Spring groundbreaking planned. It is yet to be seen whether both will move forward to construction.
Lower quality second and third generation retail spaces remain hard to fill. At the end of third quarter 2010, vacancy rates in the Boise area stood at 13.4 percent with a 26 percent vacancy for spaces of 20,000 square feet or bigger. Among the better performing submarkets was Meridian with a vacancy rate of approximately 7 percent, thanks largely to the Dick’s and Hobby Lobby deals. Additionally, the market has yet to backfill many of the big-box spaces vacated in national bankruptcies of such retailers as Circuit City and Linen ‘n Things and the early 2010 exit of Sam’s Club from its 134,000-square-foot facility in the Boise submarket in Nampa. Furthermore, several restaurant vacancies in the 6,000- to 8,000-square-foot range have seen reduced rents from $17.50 per square foot to $12 to $13 per square foot for fully equipped spaces, yet most offers for these spaces are coming in at a mere $7 per square foot leaving them on the market longer than expected.
Along with the rest of the nation, Boise remains cautiously optimistic for the future. While Boise has certainly seen its ups and downs throughout the recession, it seems to be emerging on the positive side with potential for steady gains over the next few years as we experience a stabilized recovery.
— Cleve Brock is an X Team International partner and associate broker at Intermountain Commercial Real Estate in Boise, Idaho.