Impacts To Tenants In Our Booming Economy

We try to keep our TRA blog topical and talk about conditions that either are or may affect our occupier tenants. So here it goes, and we hope this is informative.

Boise has been in a strong growth mode the last couple of years. Many would call it a tear and it is certainly the strongest and longest economic expansion I have seen in Boise during my 30 years here. A sure sign of expansive growth is the rise of anti-growth sentiments being expressed by Boise residents. A recent poll reported that 72% of respondents were concerned about too much growth. And growth is a two-sided sword and doesn’t insure uniform benefits to all. Take for example San Francisco and its explosive tech driven growth. Some people feel that the growth there has forced more people into homelessness because of high residential rents. But homelessness is not our subject.

I was recently in San Francisco and and visited a commercial real estate colleague. His company is in the new Sales Force Tower and paying $125.00 per sf per year in rent. By contrast our highest Boise area Class A office building rent which includes the base rent and all the building services has not reached $30.00 per sf per year (maybe not yet)

So what is going on here in the Treasure Valley? Well, lots.

Tenant demand is strong and we are assisting/advising more and more companies expanding their operational foot print here. Everyone is concerned about being prepared for future growth. And we continue to work with companies who are moving here from other, more costly larger cities.

So how is all this affecting our Boise area tenant clients? For us our clients are always upper most on our minds and representing them is not a “side hustle”.

First, we are seeing fewer and fewer vacant opportunities. For example, in the Eagle area, office vacancy is effectively zero in any size range. We are seeking space that can accommodate 25- 30,000 SF and our only option is new construction. Meanwhile the company is hiring and expanding and running out of room. We have also been looking in Boise for a 20,000-sf vacant and office building to purchase and finally, after a 9-month effort, have identified one option. Luckily, before it hit the open market. The days of having so many options that our clients could casually drop buildings off the short list are gone. As far as industrial space, we are working with several 10-20,000 sf occupiers. 2nd generation options are few and far between and often come with some dysfunction (limited doors/yard space/clear heights). Tenants are often settling for less than perfect solutions. At the same time, new well located and well-done industrial space is being leased rather rapidly. With vacancy rates under 3% valley-wide, it’s going to take some time before new construction becomes over-built.

Secondly, any reader of this newsletter wouldn’t be surprised to hear rents are going up but the under-reported story how this is largely due to the cost of  tenant improvement construction. Newly constructed office buildings are offering an average of $55/SF tenant improvement allowances. But the cost to finish new office space has pushed up and now is in the low $70/SF to as high as $120/ SF. This plays havoc with lease dynamics. Longer terms, no free rent, and higher rents are the consequence. Remodels of 2nd generation space now cost so much that Landlords are pushing much of these costs onto tenants. Typically landlords will handle the construction and amortize the remodel costs into the rent. Sometimes the tenant writes a check. Either way, space costs for our clients are rising significantly.

Thirdly, the booming local economy is severely affecting the delivery timing for construction projects. All the trades that used to be available at the drop of a hat can’t turn bids around fast enough, if they bother bidding at all. The various city planning departments which must review building plans and issue building permits are swamped. It’s taking them 5 to 8 weeks to complete the process when it had been 2-3 weeks. Architects are busy, engineers are busy…you get the picture. As you’ve heard us say before, start early!

To conclude, yes there are challenges in our commercial office and industrial market today. They are natural by-products of the strong economic and demographic growth the Treasure Valley is experiencing. And yes, the growth brings us all more economic opportunities.

It is still possible to secure good space at attractive numbers if you start early and link yourself to a qualified and exclusive tenant/occupier focused broker (Tenant Realty Advisors comes to mind). Contact us if your lease is expiring within the next 12 to 24 months.

Go forth and prosper.

Leave a Comment