Our Looming Office Space Shortage

The local Boise, Meridian, Eagle, Nampa, and Caldwell economies have been on a tear since 2015/2016. Everywhere you go you see new construction, and roads are torn up. We are seeing traffic get heavier and finding a parking spot harder. City elected officials are talking about new civic projects. Like the hugely expensive and somewhat controversial new downtown Boise library. And of course the ever elusive ballpark.

In the business community, we are seeing local homegrown companies expanding and hiring. We hear of some companies which were birthed and incubated here being bought by large national concerns and the founders putting a boatload of money in their pockets. And we are assisting out of area companies expand or relocate to the Boise MSA. This is a common reality now, where in the past, it was mostly rumored.

Let the good times roll.

But if you take a harder look at what’s going on one can see a potential issue coming. The construction that we see, the growth of new buildings is largely single family or multi-family residential. We aren’t seeing a lot of new office construction. Office Tenants all over the treasure valley are expanding. But the supply is not keeping pace.

This situation has also been seen in the warehouse sector but this seems to be correcting itself. Currently the industrial vacancy rate..the amount of available space as a percentage of the entire market…is down to 2-3 percent. Wow, that has made our job very challenging and certainly not fun for our industrial clients. Leading up to today’s situation, the problem was the rent rates for industrial space were too low for developers to be able to build, to get the bank loans to acquire the land & for construction costs. Finally, the growth in demand and the need for industrial space pushed up rents to the point that new construction works for developers. A couple of new industrial developers have jumped into the game and have turned out new product. At the moment there are several new industrial projects under construction and they appear to be leasing almost as fast as construction is finished. The industrial market is correcting itself and supply is starting to catch up with demand. But for now, the market is not oversupplied and in fact, rents continue to rise. We are advising our industrial friends and clients not to expect a lot of options to consider and not every landlord will be offering aggressive economic terms. But at least things are improving.

Back to office space….there is a lot of growth in office demand in downtown, the downtown periphery (read “free parking”) and in Eagle and Meridian. In Eagle for example if you want space over 3,000 SF there are literally no options. Rates here have risen to all-time highs. In Meridian, which employs many in the real estate sector plus call centers and customer support, rents are approaching downtown rates. Tenants traditionally found plenty of options but we are down to one or two large blocks of space. One new building at 10 mile/I-84 is now full and another likely to fill soon. In downtown Boise Class A space is down to 7% vacancy. There is one building under construction on the Connector which is already approximately 50% leased by tenants in spite of the fact it’s still months away from completion. The periphery sees vacancy shrinking every day.

So, office vacancy is shrinking, rates are climbing, but there is no real new construction to speak of. As we read the tea leaves we are trying to anticipate future issues. And so as you may have already concluded, the big issue we anticipate in 2019 is the lack of office space in most parts of town. This will surely be reflected in big rate increases for those new and renewing tenants needing to make a decision in 2019/2020.

So, as we move through 2019, it’s going to be even more important to the user/occupier of industrial and office space to have an individual working to improve their commercial space outcome for them. It’s going to take more digging more creatively to find space and more finesse to get the best economics possible.

And give yourself enough time by starting the process early. Call us today for a quick market analysis of your needs and we can suggest a timeline for next steps.

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