2016 has kicked off with a bang here in Boise with a variety of larger deals/moves. While most of the absorption consists of existing local tenants expanding and taking more space as opposed to new tenants moving into the area, the net effect has been a decrease in vacancy and a continued upward push on rents in good locations.
Downtown Boise continues to experience a growth explosion. There are no fewer than five cranes in the air today, which may be a “personal best” for our Downtown. There are three hotels being built and two multi-family apartment or residential condo projects under construction. Three of the five cranes are at work on corporate headquarters for two companies: Simplot (320,000 SF) and Clearwater Analytics (105,000 SF in City Center Plaza). These two tenants will be vacating other office space downtown.
As a result of these two new headquarters, a significant amount of space will be coming on the market. The 44,000 SF that Clearwater will vacate when, as mentioned above, they move to the new City Center will affect two Class A buildings. Simplot’s move into its new HQ could be put off until early 2017, but their 104,000 SF is already on the market and the long established Boise law firm Moffatt Thomas engaged TENANT REALTY ADVISORS to represent them in leasing a full floor (17,000 plus SF) to occupy after Simplot vacates.
Some of the other deals happening downtown: Internet banking is taking its toll on many traditional banks, as evidenced by Wells Fargo right-sizing close a couple floors of space downtown and also selling off one of their Elder Street office buildings. TENANT REALTY ADVISORS assisted JP Morgan Chase on a downsize renewal this month, and 11,000 SF of their space is now on the market in the Chase Tower. On the positive side, Paylocity is a new tenant to town occupying 12,000 SF in the CW Moore Building while they pursue a build to suit in or near downtown. They are seeking an 80,000 SF location and there are no existing options. For downtown office building owners the good news is that many traditional tenants are growing and incrementally taking more space when they can. While individually these expansions are small, overall their effect is less available space.
Most of our Boise commercial real estate brokerages, when gathering market data for their “market reports,” lump all downtown office buildings together as Class A. This is not how it’s done in most metropolitan markets. If we would use a more selective definition of Class A as space of higher quality in mid- or high-rise buildings recently constructed or updated, the list is significantly shortened. If we use the correct definition of Class A, downtown Boise Class A office buildings have a vacancy/availability of just 5 to 5.5 percent. Traditionally a 6 or 7 percent vacancy rate is considered “tight.” The less publicized stat is that there is an approximately 15% “availability” rate when you consider those spaces not yet vacant but soon to be. The downtown office market has led the Treasure Valley for the last two years in the amount of office space absorbed, with an additional 300,000 SF spoken for by three major tenants alone so we expect the gap between ‘vacant’ and ‘available’ to quickly close.
On the edge of downtown, St Luke’s hospital prepares to occupy 150,000 SF vacated by AECOM (formerly URS). AECOM was advised by TENANT REALTY ADVISORS in their relocation to a suburban building in Meridian. St. Luke’s has also purchased the 125,000 SF Portico office tower in Meridian for over $30 million. Scentsy had been trying to sublease their 60,000 SF of space in the building but has been released from their lease to make way for more St. Luke’s administration offices.
In West Boise, World Connections has leased 17,000 SF in a former HP data center that has sat vacant since the downturn. MassMutual has left behind 8,000 SF near the airport and taken 11,300 SF in the Village while Thompson Reuters (Mark Monitor) gets ready to take 40,000 SF in the Village, leaving behind 25,000 SF on Emerald this fall. The net effect of these deals is a significant lack of big blocks of space remaining in town, which will continue to 1) push rents up and/or 2) force more companies to get creative to solve space needs.
One small submarket worth noting is Eagle. Home to many small branch offices, real estate related businesses and a few tech and corporate offices, Eagle has filled up. If you need more than 3,000 SF, you could be surprised and disappointed. Recent available property searches for two clients of Tenant Realty Advisors seeking 4-5,000 SF produced no Class A/B options. The developer of the Eagle River business park thinks the time could be right for a new building and with proforma rents in the $25+ range, and he could be right. Those rates are comparable to downtown Boise. Meanwhile, T-Sheets has inked a deal to take 40,000 in a planned office building across the river from their current location.
Industrial happenings include the sale of the former Weyerhaeuser facility on Amity street to Hayden Beverage, which has put their current 125,000 SF site up for sale. There are several companies giving it serious consideration, and it is on the short list of a Tenant Realty Advisors client. Patrick Industries leased the 120,000 SF former SPC plastics facilities on Westpark Street in West Boise. They are a vendor for the new Heartland RV manufacturer in Nampa. And the long-empty site on Madison Ave. in Nampa sold to a church late last year, taking 84,000 SF off the market. All told, Industrial vacancy is at an all-time low and rents are approaching all-time highs.
Other thoughts….While Albertson’s has reestablished a headquarters here and taken back much of their space, the much hyped idea that their vendors would also re-establish a presence in Boise has not materialized. A few vendors such as Hershey, Colgate, and Proctor & Gamble have taken small offices, but that is it. This may be a sign of the conservative times, with vendors working from home offices and covering larger territories.
Also, while talks of build-to-suits are becoming common, actual BTS deals have not really materialized yet. A lot of the area tenants aren’t (yet) willing to pay $25+ rents that are needed to justify new construction. It is suspected that they will just hunker down and make do with their current space, albeit tight and sometimes non-contiguous. This may change if things fall into place out at 10 Mile and I-84 for Ameriben, Brighton Corp, and a few others, but right now we are waiting for confirmation that suburban tenants will pay the rents that are required to justify new construction. With the exception of Silverstone Plaza (which is largely leased) and Portico (now off the market) there are no 3-5 story Class A buildings in Meridian.
Speaking of rents, while approaching all-time highs, our office rents are between 40 and 60 percent lower than our neighboring cities such as Salt Lake City, Portland, and Seattle. The city with runaway office rents is San Francisco, whose median rent of $72.26 PSF now exceeds Manhattan’s median rent of $71.85 PSF. The city on the Bay now has the dubious distinction of being the new king of expensive office space.
The Boise economy is strong and the city continues to be mentioned on many “best cities” lists. We are fortunate to be in an area that both attracts and welcomes newcomers and new businesses. This is healthy and welcomed growth that helps our business community.
For the near term this growth has created demand for all types of commercial space that in some submarkets and property types cannot be met with our existing inventory.
If your lease expires within 12 or 18 months our advice is to start the consideration process now and call us now to build a strategy. Our consultation is not time consuming and doesn’t cost anything.
Give yourself plenty of time so time is our friend, not our enemy.