We are seeing mixed messages in our national and local economy, as well as in Boise area commercial real estate activity. It is difficult to describe. Some segments are doing quite well. For example, smaller office tenants are gobbling up space around 2,000 to 5,000 SF in West Boise, Meridian and Eagle. This is counter intuitive because with all the talk of remote work the soothsayers were predicting the death of office leasing. Now four years after the onset of the pandemic, workers are returning to the offices – albeit in a hybrid version. The overall office vacancy rate in the Treasure Valley is 6 to 7% (but multi-tenant vacancy is near 11%). Most commercial real estate experts consider this nearing a tight market with fewer choices for tenants. And rents have not gone down due in part to the cost to build out new or remodeled office space, which has literally exploded because of labor and material shortages. New office buildings construction is nearly at a full stop. Interest rates and construction costs exploding combined with the sense of uncertainty took the wind out of the sails that were flying in 2019.
Industrial new construction and lease commitments by tenants has been extremely active. We have tallied an estimated 6 to 7 million square feet of new Class A industrial space under construction and scheduled to be available for lease this year or early next year. Two Million has delivered thus far in 2023. But this isn’t as simple as a quick glance may make it seem. The bulk of this new space does not accommodate our more common tenant’s needs of 5,000 to 10,000 SF. Rather, the new construction really works best if you are a 25,000 SF and bigger user. Not trying to be uncharitable but most of this new construction is being done by out of state developers with no experience in the Boise market who are building the same type and design building that they are familiar with in bigger cities then Boise. We at TRA are seeing the first signs of softening of industrial space leasing as an oversupply situation may be coming. Vacancy is rising and over 12% in Canyon County (it was 2% a few years ago).
The biggest drop-in commercial real estate activity of note is in investment sales. Idaho is a “non-disclosure state” which means that the buyer and seller are not required to disclose the sale price or terms of a sale. This makes it difficult to track actual sales by total value. That said it appears that sales of local investment properties have dropped off by 50-60%. All national CRE companies and our bigger local firms are reporting investment sales at a near standstill as buyer and seller expectations stay apart and interest rates rise.
This illustrates the ups and downs of the free market system. Just a few years ago, out of state investors thought they had discovered The Promised Land and were bidding up the price of almost every type of commercial property that had a Boise area address. The same thing happened of course with residential property to the point that Boise is no longer considered affordable.
If you are considering a purchase of an office or industrial building for your own use, put our tenant/buyer focus and market knowledge on your side. Our involvement does not come with a cost to you because the seller pays commissions. Let us help you take advantage of the market in flux.