Vacancy rates falling in some areas.
The end of last year ushered in an increase of activity, a higher absorption of existing space and lower overall vacancy rates for Boise’s office market.
In 2008, the economy went into a tailspin. It led to an increased supply of vacant commercial space in Boise as companies retrenched and downsized. Jobs and customers were also lost throughout the region.
Unfortunately, there were a few submarkets that were dramatically affected. In fact, the Boise CBD (central business district), or downtown core, was the only local market that didn't experience a significant increase in vacancies or a huge drop in rents.
Other areas listed below were negatively affected:
- The area near the intersection Cloverdale and Chinden, adjacent to the Boise HP campus that is known as the Boise Research Center, was hit particularly hard. HP downsized, re-trenched it operations and its sub-contract suppliers cut back. This created a vacancy rate of almost 30 percent. The Boise Research Center region was also hit by the bankruptcy of DBSI, a large real estate investment firm that put about 75,000 vacant square feet back into the local market.
- The area known as Eagle River, between the new Eagle bypass and the Boise River, experienced many foreclosures and vacancies as well. There was a heavy concentration of residential property brokerage companies, mortgage companies, residential developers and title companies in this area that had been previously been involved in Eagle's rapid residential growth. As that market dried up, so did the demand for office space.
- The Emerald Corridor, near the Boise Town Square mall, experienced a rental rate decline that was the lowest seen in decades.
Landlords who recognized the negative trends responded by offering incentives to prospective tenants, which included lower rental rates and higher tenant improvement allowances. By the end of 2010, Boise had become a tenant's market.
Being that the Boise CBD was the only market that didn't suffer huge losses, it didn’t come as much of a surprise that the newest and largest speculative office project in Ada County was recently announced in this area by the Gardner Company. The project will occupy the infamous “Boise Hole” located downtown at 8th and Main, and will provide space for larger regional tenants. By opening up the tight Class A market, Boise also has a window to entice new, larger tenants to downtown, as well as to provide opportunities for growing tenants.
Meanwhile, vacancy rates in some areas have fallen dramatically. The Boise Research Center will rise from a dismal 30 percent to a projected 10.4 percent once three large companies that have purchased buildings in the center take up residence. These three purchases encompass 225,000 square feet. This projected vacancy rate is just half a percentage point above the region’s 2008 vacancy rate of 9.9 percent. Rates are also $4 lower per square foot than they were in 2008.
Tenants are growing less tentative and are signing longer leases, with the average lease term crawling back to 36 months. Though short leases offer business owners flexibility, this flexibility is usually at a higher cost. Business confidence pays, as longer leases tend to mean more affordable prices.
Leasing activities in some areas and product types have also increased to rates we haven't seen since 2008. Unfortunately, new construction is still likely to lag. Depressed rents have made it almost impossible for new projects to pencil for developers, as rent levels aren't supporting the required construction lending.Banks and lenders are also unlikely to finance speculative projects as they did in the pre-2008 heydays.
The available options and level of incentives are changing, however, in Boise’s office market. Many believe lease rates have bottomed out, and that landlords aren't as willing to make the concessions they once were. As a prospective tenant, you may not see as many space options as you would have a year or two ago. Those seeking a lease renewal or possible relocation this year should know that it will be more important than ever to obtain the assistance of a knowledgeable leasing broker who understands how market changes could impact the tenant.
— Bill Beck is the owner of Tenant Realty Advisors in Boise