It is that time of year when we reflect back on the previous twelve months and wonder what the next twelve months may bring. Here are some (very) random thoughts on the state of the Boise metro/Treasure Valley office and industrial properties markets.
In 2023, the local office building market for lease space was relatively healthy. The overall area rate of vacancy was 7-8%. Demand did drop off to an extent during the year but so did new construction which largely stopped. What may be more telling was that the amount of tenant leased space that was offered for sublease was also not a significant amount. In that respect we haven’t seen the “drop off the cliff” market conditions as seen in San Francisco, Seattle, and Portland. San Francisco was particularly hard hit by high tech office tenants pulling back, so much that downtown buildings were 33-34% vacant. Our Boise downtown has remained vibrant with cranes employed in constructing several new apartments, condos and one new hotel. Our downtown restaurants experienced a slowdown during Covid but judging from the patrons dinning downtown these days, that is in the rear view mirror. I am at a loss to explain why Boise wasn’t as negatively affected as our neighboring cities. Maybe it was because we have short car commutes and are not as dependent on crowded public transit?
Industrial space and new construction exploded – as it has in many other areas in America. The pandemic exposed weaknesses in our supply chain and just in time inventory delivery. This combined with the huge increase of online retail sales where rapid fast delivery is paramount, gave rise to “fulfillment centers” all over the Valley. Amazon has six such facilities – the largest and most prominent being the 1,000,000 SF + location in Nampa near the Garrity exit.
However, as is often the case, property developers not wanting to miss the band wagon will jump in and over-build if the banks will loan the construction money. In research conducted by my colleague, Greg Gaddis, SIOR, CCIM, it is reported that the Valley has between five and six million square feet of brand new industrial space under construction or recently finished and available for lease. However, our historic annual leasing of industrial space has only been approximately one million SF. All of this new space is mostly the same design and configuration, which includes 30-32 foot interior ceilings and a minimum size of 20-25,000 SF for a tenant. In other words, because the most common industrial space user is 5,000-10,000 SF, this abundant space is of little or no use to many of our local companies.
The risk-taking industrial property developers may yet do OK. Micron is embarking on a major expansion of fab manufacturing and new office space and will hire substantially more engineers. There are Micron subcontractors that are lined up to lease industrial space near Micron and even out to Nampa/Caldwell. Another major project that will drive industrial space demand/leasing is the META data center at or near the intersection of S. Cole and Kuna-Mora roads. That facility will be approximately one million square feet. Another factor that will benefit the developers who have standing and completed projects is the rise in interest rates, which will slow or stop new and potentially competing projects.
So we will wait, watch, and learn how to best help our clients navigate the local market to their best advantage.