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Your Guide to the Boise Commercial Real Estate Market

MID-YEAR 2013 BOISE

MERIDIAN

EAGLE

N A M PA

CALDWELL


EXPERIENCE: market insight

Office Net Absorption — Submarkets 150,000

Timely.

Office Summary

West 132,800

120,000

Change from last:

Maximus call center 167,500 SF leased

Square Feet

Accurate. Comprehensive. Reliable. 60,000

Meridian 45,200

BioLife 16,000 SF new construction

30,000

Nampa 3,300

0

South Meridian 34,000

Quarter

Vacancy Rates

Southwest 24,300

Eagle 12,600

Year

Lease Rates

90,000

Central 10,600

Absorption

Airport -3,700

North -4,200

Caldwell -6,900

-30,000

23,900 SF vacated at Key Financial Center

Southeast -8,900

Construction

Downtown -42,300

-60,000

Office Historical Vacancy 22.0%

Market Activity

Multitenant Vacancy: excludes owner-user Total Vacancy: subleases not included

21.35%

MARKET REVIEW:

Lease rate trends Vacancy analysis • POWER Engineers expanded their presence in Meridian

20.31%

• OptumInsight leased a 12,300 SF building on Watertower Lane in Meridian.

20.0%

18.64%

June 2013 Vacancy Rate

18.0%

12.67% Industrial Net Absorption — Overall Market • Boise State University leased 11,900 SF at University Plaza

INVESTMENT WATCH

VACANCY

OFFICE

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Based on disclosed transactions in the Boise MSA

Office

600,000

$400

15.0 mo

INDUSTRIAL

5.7%

+4,800

7.8 mo

RETAIL

14.1%

-11,800

29.6 mo

Av e

.

River

10

th

20

22.04%

494,000

400,000

$350

302,000

Chinden

26

VACANCY

OFFICE

SUPPLY

-4,200

39.2 mo

5.2%

+48,600

8.2 mo

12.0%

+10,000

16.1 mo

e

is

er

Riv

VACANCY

pa

am

-C

Cherry Lane

11.79%

14.1%

12.3%

RETAIL

5.4%

+132,800

23.4 mo

+3,400

25.8 mo

-32,700

12.8 mo

VACANCY

Gar

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q2 Overland Rd.

Q1

Greg Gaddis interest rates remaining low, investors many are208.947.0827 more comfortable Total vacancy and unanchored vacancyWith increased last housing With the recovery underway, contractors areassuming in need of 25% Unanchored Vacancy month to 8.9% and 16.7% respectively.or Toys R Us and new debt placing on properties. Cash buyers still exist, though housing not at greg@tokcommercial.com additional space, but are hesitant to grow too quickly. A sustained

16.6%

+24,300

43.0 mo

INDUSTRIAL

11.0%

-34,700

19.7mo

11.7%

-34,100

33.8 mo

20.6 mo

+5,000

12.8 mo

+25,500

5.3 mo

Market analysis covers the entire Boise MSA by submarket

ABSORPTION SUPPLY

16.1%

+10,600

30.7 mo

11.5%

-20,100

42.7 mo

7.8%

+12,900

16.3 mo

VACANCY

OFFICE

ABSORPTION SUPPLY -8,900

8.9%

30.6 mo

Moving Location 5% Cleverley Mark 38% 208.947.5507 New to the Valley markc@tokcommercial.com 22% INDUSTRIAL

5.1%

+8,300

22.4 mo

RETAIL

16.8%

-2,500

71.8 mo

Cole

Multifamily 22%

ABSORPTION SUPPLY

OFFICE

17.7%

-3,700

52.6 mo

INDUSTRIAL

4.0%

+24,600

11.0 mo

RETAIL

20.3%

0

57.9 mo

n/c

Expansion Office 27% 51%

Retail 22%

Kuna Rd.

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

B o i s e , I d a h o 8 3 7 0 2$0.50 •

208.378.4600

$0.48 $0.46

$0.48

tokcommercial.com

Overall Asking Rates Overall Actual Rates

$0.48

Office 4

19,770,916 SF 4,633,347 SF 4,141,075 SF 3,318,896 SF 1,280,800 SF 1,213,894 SF 451,232 SF 114,268 SF 79,187 SF 64,868 SF 52,713 SF 32,024 SF

Net Absorption 1. Downtown 2. South Meridian 3. Nampa 4. Central 5. Meridian Based on last 12 months

15,717 SF 25,528 SF 15,240 SF 13,404 SF 12,934 SF 10,974 SF

Industrial Transactions by Square Feet

King Rd.

Total Inventory 1. West 2. Nampa 3. Meridian 4. Southeast 5. Central Gross Absorption 1. Meridian 2. Nampa 3. Downtown 4. West 5. South Meridian

Deer Flat Rd.

Q3

Retail

n

VACANCY

concern about the long-term stability Lease of someRates of these assets due to low Average Industrial market rents and high tenant improvement *Monthlycosts. Triple Net warehouse lease rates

66,857 SF Mike Greene, CCIM 48,632 SF 24,554 SF 208.947.0835 8,299 SF mikeg@tokcommercial.com

2. Nampa 3. North 4. Airport 5. Southeast

Gowe

AIRPORT

Five Mile

Cloverdale

Eagle

Meridian

Ten Mile

Happy Valley Rd.

Southside Blvd.

12th Ave.

Powerline Rd.

McDermott Rd.

RETAIL

Greenhurst

ABSORPTION SUPPLY

OFFICE

Babies R Us combined their stores into a 50,300 SF Lake Lowell theUslevels seen in the past few years. Lenders are seeking well-capitalized location at The Village at Meridian. Toys Rrecovery vacated will strengthen confidence for these business owners, compelling 20% investors these buyers are receiving 19.50% 45,000 SF near the Boise Towne Square Mall, driving many toand lease or purchase more space. competitive offers from banks vacancy in West Boise to its highest point since early to fund their loans. Locust 16.65% 2012 (5.5%). Babies R Us vacated 30,600 SF in Meridian Crossroads, just south of their new location. Theactivity City 15%isTotal Sale down Vacancy from 2012, however buildings with excess land are Capitalization rates vary by product type, but most have stabilized in the of Caldwell purchased the former Kings space in 12.86% still highly sought after. In some cases, demand for this product type has downtown Caldwell, dropping vacancy7into Caldwell to 8.5 percent range. Higher cap rates still exist for distressed properties. KUNA ledrates to are bidding wars between 9.84% multiple buyers. 8.88% 6.3%, its lowest since mid-2010. Overall lease 10% up in 2013, while Class A rates remainMultifamily flat. Projected projects, viewed as having minimal risk, are in high demand, supply is 18 months for retail, lower but than the both supply the of quality product is low. These properties are seeing cap office and industrial sectors. Downtown Boise has the rates in the 6 5%percent range. Retail assets continue to trade, but there is lowest projected supply of all submarkets (6 months). 2010 2011 2012 2013 Midland Blvd.

VACANCY

Maple Grove

Amity Rd.

SOUTHWEST

-42,300

6.6%

OFFICE

.

St.

7.4%

4.0%

RETAIL

RETAIL

Av e

d

ABSORPTION SUPPLY

OFFICE

INDUSTRIAL

INDUSTRIAL

Curtis

Q4

11 th

2n

Retail Review

250 S. 5th Street, 2nd Flr

VACANCY

ABSORPTION SUPPLY

n/c

Emerald

9.46%

Franklin Rd.

55

OFFICE

INDUSTRIAL

Fairview Ave.

10.76%

Can -Ada R.

d.

lv

B

Franklin Rd.

ell

w

Northside Blvd.

ald

New Construction

79,378 SF 67,270 SF

Bo

Middleton Rd.

ABSORPTION

17.0%

INDUSTRIAL

16.75%

Ustick Rd.

21.99%

Absorption Rate

Absorption analysis

McMillan Rd.

19.75%

rity

Total Vacancy

22,550,801 SF 5,767,479 SF 4,168,068 SF 2,626,312 SF 2,085,279 SF 2,037,241 SF

3. Meridian 4. Eagle

17,000

0

RETAIL

Q3

Retail

Total Inventory 1. Downtown 537,000 2. West 3. Central 375,000 4. Meridian 286,000 5. Southeast Projected

$410M

Broadway

19

Boise

N

New Construction

Q1 Q2 Q3 Q4 Q1 Q2 Investment Sales Volume 2012 2013

at Eighth & Main. While both projects should see$250 strong occupancy, most of their tenants will be5. leaving 176,000 other spaces within the market, $220M Central 64,062 SF $227M With the distressed Class A market tightening, landlords have started bump rents $227M With fewer and bank-owned sales occurring, sellersto will find fair -43,000 YTD $220M -56,000 Projected -67,000 NORTH leading to a rise in overall vacancy. Net Absorption 196,886 SF Total vacancy and multi-tenant vacancy remained up, especially intheir high-quality product. Quality space fetches in the market prices25%forMuti-Tenant properties. Accurate sale comparables arerents helping -200,000 $200 Vacancy 1. West 132,818 SF flat in May at 9.5% and 16.8% respectively. Sagatron 2. Meridian 45,179 SF $0.50 per square foot range (NNN monthly rents). While lease rates have appraisals and providing sellers with valuable information as they Group Incorporated leased 15,000 SFguide near Micron, 3. South Meridian 34,023 SF Small businesses may keep expansion plans on hold as$158M health care laws are implemented over the coming year. Fear of the unknown will $150 -400,000 4. Southwest 24,311 SF improved, they areMany still 10 percent below peak in 2008. Concessions dropping Southeast Boise’s vacancy toposition 5.1%. Ambush their20% assets. properties with fairthe market pricing aregrowth receiving $143M 5.in Eagle 12,590 SF $115M 2004but 2005 2006 result 2007 2008 2009 2010 2011 2012 2013 stymie some of the potential within these companies, could in pent-up demand a few years if health care laws have the YTD Tactical moved into a larger space on Chinden lastfrequent than in years past and although free rent is still offered, $99M areBlvd less multiple offers. Some of today’s sellers were yesterday’s buyers of distressed $100 DOWNTOWN positive impact that is intended. month, dropping North Boise’s vacancy to its lowest Industrial $71M $61M it isvacated typically only a fewhave months for a to long-term (5+ years).with the properties. These sellers worked stabilizedeal the property Total Inventory 32,607,202 SF point since late 2008 (5.3%). A game supplier WEST 1. Nampa 5,859,243 SF $50 15,400 SF in Southwest Boise, pushing goal vacancy a 12 15% Total Vacancy intomind to flip the property. Boise’s lifestyle and cost to do business are attractive to companies outside Idaho. However, poor infrastructure and 2. Airport 5,032,428 SF transportation options Industrial Transactions by Tenant Origin month high (11.0%). Nampa’s vacancy improved for a 3. West 3,963,510 SF Industrial to owner-occupied buildings, are limited hampering our market. Limited flight access and flight costs have negatively impacted travel to and from regional 4. Meridian 3,947,432 SF markets. This is an area $0 5th consecutive month, however this submarket still construction has been Based on transactions recorded over past 12 months 5. North 2,812,133 SF 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Out-of-state buyers are attractedthat to needs Idaho’sto capitalization rates has over one million square feet of vacant product. with no speculative construction delivered inhigher the first half ofin 2013. Tenants 10% be addressed order for Boise to maintain its standing as one of the nation’s top locations to do business. Gross Absorption 609,762 SF CENTRAL Lease rates are up in 2013 with an average asking and the ability to purchase qualitylament productthe in lack the $1 $2 million range. 1. West 114,583 SF with very specific requirements of to available options and rate of $0.43/SF, NNN. Projected supply is currently 24 2. North 110,977 SF The downside is that local investors are facing heightened competition Local Startup 3. Nampa 102,131 SF landlords need to be creative in order to complete transactions. Some months, down a full 12 months from its high in 2009. 88,324 SF 5% 13% by Property Investment Sales Type4.5. Airport with out-of-state investment that are more and want Southwest 56,960 SF SOUTHEAST 2010 2011 groups 2012 2013 aggressive landlords are willing to pay for tenant improvements or are working with Netdisclosed Absorption 176,074 SF Based on to tenants close transactions quickly. on build-to-suit options. Industrial Caldwell 81,313 SF transactions in1.the Boise MSA Ustick Rd.

Absorption Rate

Q4

800,000

$450

$ in Millions

Q3

44

Total Vacancy

Q3

2011

ABSORPTION SUPPLY +12,600

Q2

• A new call center to Boise leased 167,500 SF off of Chinden Boulevard, bringing between 1,500 and 1,800 Rankings jobsSubmarket to Top the5 invalley. each category

11.58%

Gross Absorption vacancy200,000 is expected to increase, primarily due to 140,000 square816,822 feetSFof new space that will be 1. West 257,281 SF tilt buildings in Ada County is only 7 percent. $300 fundamentals. 2. Downtown 139,293 SF delivered at The Village at Meridian this fall. Vacancy is expected to increase again in early 2014 with the completion of 253,000 square feet

Industrial Review

Industrial

14.7%

1,000,000

Q1

on Broadway Avenue.

1,159,000

1,200,000

OUTLOOK

New Construction

• BioLife completed construction on a new 16,000 SF facility on Eagle Road. BioLife is new to Boise.

13.87%

Vista

Absorption Rate

14.13%

Total vacancy declined from 12.7% to 12.6% in May. 25% Multi-tenant vacancy reversed its 4 month climb and Multi-tenant Vacancy The17,000 Industrial market began with a12.0% sluggish start as transaction volume dropped to 18.8%. US Ecology leased nearly 21.08% SF in Downtown Boise, but will vacate 14,000 SF inleading slowed, to negative absorption in the first quarter. However, the Southeast Boise. As a result, vacancy in Southeast 20% second quarter of the year saw19.54% noted improvement. 18.83%Total vacancy declined Boise is up for a 4th consecutive month to 9.4%. BioLife 10.0% Plasma Services completed constructionto on9.1 its new Q2 percent, Q3 Q4 its Q1 lowest Q2 Q3 Q4 percent Total andVacancy multitenant vacancy fellQ1to 16.4 point 16,000 SF facility on Eagle Road last month. Power 2009 2010 15.94% since mid-2008. Transaction Engineers expanded their presence in Meridian by volume in the first half of 2013 has already surpassed 2012’s 15% leasing an additional 11,600 SF in Silverstone totalBusiness and is on pace for its strongest year since 2008. The gap between Park. Class A lease rates are up for 2013, while overall 14.07% Although net absorption is positive, most ofleading the12.56% absorption occurred and seller expectations has narrowed, to increased sales in rates are flat. This is the first time thatbuyer Class A asking MIDDLETON EAGLE Canyon County. County absorption remains flat in 2013, but the market rates have increased since 2007. Projected supply for activity. However,Ada uncertainty continues to suppress activity. Buyers the overall market is currently 26 months. Meridian varies significantly based on building quality. Vacancy for newer, concrete 10% remain risk averse,2010primarily STAR seeking stabilized assets with strong market leads the way with only 11 months of projected supply. Absorption will 2013 remain positive in 2013, but 2011 2012

Orchard

Total Vacancy

14.0%

• US Ecology leased 16,800 SF at One Front Street Center. They will be moving from Parkcenter Boulevard.

16.07%

Square Feet

Office

Office Review

17.20%

Monthly Newsletter

16.0%

Milwaukee

12 Month Comparison Jun 2012 thru May 2013

by leasing an additional 11,600 SF on Silverstone Way.

INDUSTRIAL WATCH

Thornton Oliver Keller’s Guide to Boise’s Commercial Real Estate Market

Market Trends

17.94%

18.59%

Investment trends

100 Submarket Map 2

89

90

$0.47 $0.46 Investment Sales Comparables $0.46

Multifamily Occupancy

80

Market knowledge is a critical component of sound commercial real estate advice. Each month, we provide Size Sale Price Cap Rate a summary of the commercial real estate market and trends to watch for in the Boise MSA. Office 7,400 SF $750,000 8.30% Receive a FREE SUBSCRIPTION to8.50% the area’s most comprehensive newsletter. Industrial 16,000 SF $810,000 $0.44

$0.43

$0.43

$0.42 $0.40

$0.40

$0.39

$0.38

$0.36 Retail

10,000 SF

$0.36

60

51

50 98%

$0.41

$0.38

Provided by Ada Real Estate Surveys

70 100%

$0.45

$0.44

Percentage Number of Transactions

Ada County Only

Approximate values of actual transactions in the Boise MSA

$950,000

8.10% $0.36

30 96%

31 95.8%

20

29

94.4%

10 94%

– info@tokcommercial.com Apartments Email 170 units us $17,000,000 6.10%

$0.34

0

$0.35

2006

2007

2008

2009

2010

2011

2012

2013

49

40

0 – 1,000 SF

92%

1,001 – 2,000 SF

5,500 SF

$2,000,000

Dan Minnaert, SIOR, CCIM 208.947.0845 dan@tokcommercial.com

Mike Keller, SIOR, CCIM 208.947.0844 mtk@tokcommercial.com

7.10%

90% Jerry Van Engen 208.947.0840 jerry@tokcommercial.com

2,001 – 3,000 SF

John Stevens, CCIM 208.947.0814 john@tokcommercial.com

90.5%

2006

2007

24

21

24

94.3%

3,001 – 5,000 SF

EXPERIENCE: results

Medical

96.2%

96.0%

95.5%

2008

5,001 – 7,000 SF

7,001 – 10,000 SF

90.6%

10,001 – 15,000 SF

15,001+ SF

Chris Pearson, SIOR2012 2013 2009 2010 2011 Through April 208.947.0859 chris@tokcommercial.com

Jim Boyd 208.947.5522 jim@tokcommercial.com


MID-YEAR 2013

IN THIS EDITION

STAR 44

River

20

Chinden

26

McMillan Rd.

e

is

Bo er

Riv

Ustick Rd.

1

3

Fairview Ave.

Vista

Broadway

Overland Rd.

Curtis

Emerald

rity

Gar

Orchard

Milwaukee

Can -Ada R.

Cherry Lane

Franklin Rd.

Submarket Map Gow

Office Update

7

Industrial Update

Retail Update

Cole

Maple Grove

Cloverdale

Five Mile

Eagle

Meridian

Ten Mile

McDermott Rd.

Happy Valley Rd.

Southside Blvd.

en

5

KUNA Deer Flat Rd.

Kuna Rd.

King Rd.

9

11

Investment Update

13

Land Update

15

Canyon County Update

Economic Outlook

To S u b s c r i b e t o M a r k e t Wa t c h : Email: info@tokcommercial.com

Marc Stimpson & Kristi Larson, Editors Talia Flagan, Market Research Candy Willcuts, Graphic Design Cover photo provided by: Leo Geis, Idaho Airships, Inc. Information deemed reliable, but not guaranteed. © 2013 Thornton Oliver Keller. All rights reserved. 2 5 0 S . 5 t h S t r e e t , 2 n d F l r • B o i s e , I d a h o • 2 0 8 . 3 7 8 . 4 6 0 0 • w w w. t o kc o m m e r c i a l . c o m


SUBMARKET MAP

MIDDLETON

STAR 44 Bois

e Riv

er

CALDWELL VACANCY

10

th

Av e

.

19

ABSORPTION SUPPLY

OFFICE

11.9%

-6,900

31.2 mo

INDUSTRIAL

6.9%

+81,300

14.7 mo

RETAIL

6.1%

+8,800

19.3 mo

n/c

20

26

Middleton Rd.

McMillan Rd.

Ustick Rd.

MERIDIAN Ustick Rd.

VACANCY

ABSORPTION SUPPLY

pa

am

N

OFFICE

8.6%

+45,200

10.5 mo

INDUSTRIAL

5.2%

-12,000

13.1 mo

RETAIL

8.5%

+11,000

14.6 mo

-C Can -Ada R.

Franklin Rd.

d.

lv

lB

el

Northside Blvd.

dw

al

Cherry Lane

Franklin Rd.

55

y

rrit

Overland Rd.

11 t

h

Av e

.

Ga

d

St

.

NAMPA VACANCY 14.5%

SOUTH MERIDIAN

ABSORPTION SUPPLY

n/c

VACANCY

+3,300

26.5 mo

OFFICE

10.3%

+66,900

78.7 mo

INDUSTRIAL

5.1%

RETAIL

8.4%

+13,400

18.3 mo

RETAIL

11.0%

ABSORPTION SUPPLY +34,000

n/c

23.5 mo

+15,200

23.2 mo

Locust

KUNA Deer Flat Rd.

Increasing Vacancy Decreasing Vacancy n/c No Change

Kuna Rd.

King Rd.

17.2 mo

0

Ten Mile

Southside Blvd.

Powerline Rd.

Greenhurst

McDermott Rd.

18.4%

Happy Valley Rd.

INDUSTRIAL

12th Ave.

Lake Lowell

Midland Blvd.

Amity Rd. OFFICE

Meridian

2n


Submarket Rankings Top 5 in each category

Office Total Inventory 1. Downtown 2. West 3. Central 4. Meridian 5. Southeast

EAGLE VACANCY

ABSORPTION SUPPLY

OFFICE

14.7%

+12,600

INDUSTRIAL

5.7%

+4,800

7.8 mo

RETAIL

14.1%

-11,800

29.6 mo

15.0 mo

NORTH VACANCY

Chinden

OFFICE

ABSORPTION

SUPPLY

17.0%

-4,200

39.2 mo

5.2%

+48,600

8.2 mo

12.0%

+10,000

16.1 mo

INDUSTRIAL RETAIL

Bo e

is ve

Ri r

WEST VACANCY

RETAIL

5.4%

Fairview Ave.

n/c

+132,800

23.4 mo

+3,400

25.8 mo

-32,700

12.8 mo

Emerald

OFFICE

7.4%

-42,300

20.6 mo

4.0%

+5,000

12.8 mo

RETAIL

6.6%

+25,500

5.3 mo

+10,600

30.7 mo

-20,100

42.7 mo

RETAIL

7.8%

+12,900

16.3 mo

Vista

Orchard

16.1% 11.5%

Curtis

OFFICE

SOUTHWEST VACANCY

SOUTHEAST VACANCY OFFICE

OFFICE

16.6%

+24,300

INDUSTRIAL

11.0%

-34,700

19.7mo

RETAIL

11.7%

-34,100

33.8 mo

-8,900

30.6 mo

INDUSTRIAL

5.1%

+8,300

22.4 mo

RETAIL

16.8%

-2,500

71.8 mo

43.0 mo

Gow

Cole

Maple Grove

Five Mile

Cloverdale

AIRPORT ABSORPTION SUPPLY

OFFICE

17.7%

-3,700

52.6 mo

INDUSTRIAL

4.0%

+24,600

11.0 mo

RETAIL

20.3%

0

57.9 mo

n/c

196,886 SF 132,818 SF 45,179 SF 34,023 SF 24,311 SF 12,590 SF

32,607,202 SF 5,859,243 SF 5,032,428 SF 3,963,510 SF 3,947,432 SF 2,812,133 SF

Net Absorption 1. Caldwell 2. Nampa 3. North 4. Airport 5. Southeast

609,762 SF 114,583 SF 110,977 SF 102,131 SF 88,324 SF 56,960 SF

176,074 SF 81,313 SF 66,857 SF 48,632 SF 24,554 SF 8,299 SF

Retail

en

VACANCY

ABSORPTION SUPPLY

8.9%

ABSORPTION SUPPLY

Net Absorption 1. West 2. Meridian 3. South Meridian 4. Southwest 5. Eagle

Gross Absorption 1. West 2. North 3. Nampa 4. Airport 5. Southwest

ABSORPTION SUPPLY

INDUSTRIAL

816,822 SF 257,281 SF 139,293 SF 79,378 SF 67,270 SF 64,062 SF

Total Inventory 1. Nampa 2. Airport 3. West 4. Meridian 5. North

CENTRAL VACANCY

Eagle

ABSORPTION SUPPLY

INDUSTRIAL

Broadway

14.1% 12.3%

Milwaukee

OFFICE INDUSTRIAL

ABSORPTION SUPPLY

Gross Absorption 1. West 2. Downtown 3. Meridian 4. Eagle 5. Central

Industrial

DOWNTOWN VACANCY

22,550,801 SF 5,767,479 SF 4,168,068 SF 2,626,312 SF 2,085,279 SF 2,037,241 SF

Total Inventory 1. West 2. Nampa 3. Meridian 4. Southeast 5. Central

19,770,916 SF 4,633,347 SF 4,141,075 SF 3,318,896 SF 1,280,800 SF 1,213,894 SF

Gross Absorption 1. Meridian 2. Nampa 3. Downtown 4. West 5. South Meridian

451,232 SF 114,268 SF 79,187 SF 64,868 SF 52,713 SF 32,024 SF

Net Absorption 1. Downtown 2. South Meridian 3. Nampa 4. Central 5. Meridian

15,717 SF 25,528 SF 15,240 SF 13,404 SF 12,934 SF 10,974 SF

Submarket Map 2


OFFICE WATCH Office Net Absorption — Overall Market

Transaction volume for the first half of 2013 is up 25 percent and the second quarter delivered the most net absorption since early 2007. As a result, total vacancy improved to 11.6 percent, its lowest point since mid-2008. Even with the increase in transaction volume, nearly half of all submarkets are seeing negative absorption midway through the year.

Many office tenants with expiring leases are moving to higher quality buildings. Some of the spaces these tenants vacated are functionally obsolete and will require tenant improvements in order to be leased. Early renewals are occurring less frequently as many landlords wait to see if lease rates rise before they negotiate new lease agreements. Concessions are also declining, especially when tenants have limited options. Free rent is still offered, but only for a few months on a long-term lease (5+ years). Class A lease rates have increased in 2013, while overall lease rates remained flat. The average Class A rate has risen from $17.00 to $17.50 per square foot (full service). Some landlords are standing firm on their asking rate, especially in spaces larger than 25,000 square feet where supply is limited. The availability of these large spaces has dropped 80 percent since 2010. Speculative construction is once again occurring after a hiatus during the recession, but it has been mostly limited to two high quality projects: The Village at Meridian, located at Eagle & Fairview, and Eighth & Main in downtown Boise. Both projects have generated strong interest in a market that has not seen a notable Class A project since the Portico project was delivered in 2010. For spec construction to occur on a wider scale, lease rates must recover to near pre-recession levels.

925,000

800,000 617,000

600,000

535,000 468,000

Square Feet

The most negative absorption occurred in downtown Boise due to large spaces vacated in Class A buildings. Southeast Boise has also seen a decline in activity this year. However, this was offset by steady activity in Meridian and nearly 170,000 square feet that leased to a call center in west Boise.

1,000,000

400,000

311,000

0 -200,000 -400,000

-413,000

-600,000 2004

$19.00

$19.00

Class A Asking Rates Class A Actual Rates Overall Asking Rates Overall Actual Rates

$19.00

$19.55

2005 2006 2007

2008 2009 2010

2011

2012 2013

Downtown Class A Vacancy 20.0%

Overall Vacancy Downtown Class A Vacancy 15.60%

16.0%

16.07% 14.07%

12.85%

12.0%

12.32%

11.80%

11.58%

10.44% 9.49%

8.70%

7.50%

7.31%

8.0%

6.81% 7.29% 6.36%

4.57%

4.0%

2006

2007

2008

2009

2010

2011

2012

2013

Boise MSA Total Employment

*Annual Full Service lease rates $20.00

197,000 YTD

-22,000

Average Office Lease Rates $20.00

379,000 Projected

327,000

200,000

0.0%

$21.00

465,000

Source: Idaho Department of Labor

300,000

289,400

290,000 286,400

$18.75

$18.00

$17.50 $16.75

$17.00 $16.00 $15.00

$17.00 $15.50

$15.90

$14.50

$14.90

$14.00

$14.05

274,900

270,000

268,800

$14.25 $13.85

$13.25

270,200

268,600

260,000

$13.40

$13.00 $12.00

$16.65

$16.00

$15.65

283,000

281,900

281,600

280,000

$12.40

255,400

250,000

2006

2007

2008

2009

Al Marino, SIOR 208.947.0811 al@tokcommercial.com

2010

2011

2012

2013

Patrick Shalz, SIOR 208.947.0834 pat@tokcommercial.com

2004

2005

2006

2007

2008

2009

2010

2011

2012

Grove Hummert 208.947.0804 grove@tokcommercial.com

2013

Thru Apr.


Office Net Absorption — Submarkets 150,000

Office Summary

West 132,800

120,000

Change from last:

167,500 SF leased to a call center

Square Feet

Meridian 45,200

BioLife 16,000 SF new construction

30,000 Nampa 3,300

0

South Meridian 34,000

Quarter

Lease Rates

90,000 60,000

Year

Vacancy Rates

Southwest 24,300

Eagle 12,600

Central 10,600 Airport -3,700

North -4,200

Caldwell -6,900

-30,000

23,900 SF vacated at Key Financial Center

Absorption Southeast -8,900

Construction

Downtown -42,300

-60,000

Office Historical Vacancy 22.0%

Multitenant Vacancy: excludes owner-user Total Vacancy: subleases not included

21.35%

Market Activity

20.31%

• O  ptumInsight leased a 12,300 SF building on Watertower Lane in Meridian.

20.0% 18.64%

Vacancy Rate

18.0%

• P  OWER Engineers expanded their presence in Meridian by leasing an additional 11,600 SF on Silverstone Way.

17.94%

18.59%

17.20% 16.07%

16.0%

14.0%

14.13%

• B  ioLife completed construction on a new 16,000 SF facility on Eagle Road. BioLife is new to Boise.

13.87%

• B  oise State University leased 11,900 SF at University Plaza on Broadway Avenue.

12.67%

12.0% 11.58%

10.0%

Q1

Q2

Q3

2009

Q4

Q1

Q2

Q3

2010

Q4

Q1

Q2

Q3

2011

Q4

Q1

• U  S Ecology leased 16,800 SF at One Front Street Center. They will be moving from Parkcenter Boulevard.

Q2

Q3

2012

Q4

Q1

Q2

• A  new call center to Boise leased 167,500 SF off of Chinden Boulevard, bringing between 1,500 and 1,800 jobs to the valley.

2013

OUTLOOK Absorption will remain positive in 2013, but vacancy is expected to increase, primarily due to 140,000 square feet of new space that will be delivered at The Village at Meridian this fall. Vacancy is expected to increase again in early 2014 with the completion of 253,000 square feet at Eighth & Main. While both projects should see strong occupancy, most of their tenants will be leaving other spaces within the market, leading to a rise in overall vacancy. Small businesses may keep expansion plans on hold as health care laws are implemented over the coming year. Fear of the unknown will stymie some of the potential growth within these companies, but could result in pent-up demand in a few years if health care laws have the positive impact that is intended. Boise’s lifestyle and cost to do business are attractive to companies outside Idaho. However, poor infrastructure and transportation options are hampering our market. Limited flight access and flight costs have negatively impacted travel to and from regional markets. This is an area that needs to be addressed in order for Boise to maintain its standing as one of the nation’s top locations to do business.

Greg Gaddis 208.947.0827 greg@tokcommercial.com

Mark Cleverley 208.947.5507 markc@tokcommercial.com

Mike Greene, CCIM 208.947.0835 mikeg@tokcommercial.com

Office 4


INDUSTRIAL WATCH Industrial Net Absorption — Overall Market

The Industrial market began with a sluggish start as transaction volume slowed, leading to negative absorption in the first quarter. However, the second quarter of the year saw noted improvement. Total vacancy declined to 9.1 percent and multitenant vacancy fell to 16.4 percent, its lowest point since mid-2008.

1,000,000 800,000

Square Feet

Although net absorption is positive, most of the absorption occurred in Canyon County. Ada County absorption remains flat in 2013, but the market varies significantly based on building quality. Vacancy for newer, concrete tilt buildings in Ada County is only 7 percent.

600,000

537,000

494,000 375,000

400,000 200,000

17,000 -43,000

-56,000

-400,000

2004

2005 2006 2007

Moving Location 38% New to the Valley 22%

Expansion 27%

Industrial Transactions by Square Feet

$0.46

Overall Asking Rates Overall Actual Rates

$0.48

$0.47

80

$0.46

$0.44

$0.43 $0.43

$0.42

$0.41

$0.40

$0.40

$0.39

$0.38

$0.38 $0.36

$0.36

2008

2009

2010

Dan Minnaert, SIOR, CCIM 208.947.0845 dan@tokcommercial.com

2011

70 60 49

40 30

31

29 24

20

0 2012

51

50

21

24

10

$0.36 $0.35

2007

89

90

$0.45

2006

Based on last 12 months

100

Number of Transactions

$0.48

2012 2013

Local Startup 13%

*Monthly Triple Net warehouse lease rates

$0.44

$0.34

2011

Industrial Transactions by Tenant Origin

Average Industrial Lease Rates

$0.46

2008 2009 2010

Based on transactions recorded over past 12 months

Sale activity is down from 2012, however buildings with excess land are still highly sought after. In some cases, demand for this product type has led to bidding wars between multiple buyers.

$0.48

176,000 YTD

-67,000

-200,000

With the housing recovery underway, many contractors are in need of additional space, but are hesitant to grow too quickly. A sustained housing recovery will strengthen confidence for these business owners, compelling many to lease or purchase more space.

$0.50

286,000 Projected

302,000

0

With the Class A market tightening, landlords have started to bump rents up, especially in high-quality product. Quality space fetches rents in the $0.50 per square foot range (NNN monthly rents). While lease rates have improved, they are still 10 percent below the peak in 2008. Concessions are less frequent than in years past and although free rent is still offered, it is typically only a few months for a long-term deal (5+ years). Industrial construction has been limited to owner-occupied buildings, with no speculative construction delivered in the first half of 2013. Tenants with very specific requirements lament the lack of available options and landlords need to be creative in order to complete transactions. Some landlords are willing to pay for tenant improvements or are working with tenants on build-to-suit options.

1,159,000

1,200,000

2013

Jerry Van Engen 208.947.0840 jerry@tokcommercial.com

0 – 1,000 SF

1,001 – 2,000 SF

2,001 – 3,000 SF

3,001 – 5,000 SF

5,001 – 7,000 SF

7,001 – 10,000 SF

10,001 – 15,000 SF

Chris Pearson, SIOR 208.947.0859 chris@tokcommercial.com

15,001+ SF


Industrial Net Absorption — Submarkets Industrial Summary

100,000

80,000

Caldwell 81,300 Nampa 66,900

Change from last:

16141 20th Street 34,000 SF leased

Square Feet

60,000

North 48,600

Year

Quarter

Lease Rates

5118 Sawyer Avenue 20,000 SF leased

40,000 Airport 24,600

20,000

South Meridian 0

Eagle 4,800

Downtown 5,000

West 3,400

Vacancy Rates Southeast 8,300

Absorption

0 Meridian -12,000

-20,000

2752 Liberty Street 38,500 SF vacated

-40,000

Central -20,100

Construction

Southwest -34,700

Industrial Historical Vacancy 25.0%

Multitenant Vacancy: excludes owner-user Total Vacancy: subleases not included

23.64%

21.53%

• F EM Distribution consolidated and expanded into 20,000 SF on Sawyer Avenue.

19.40%

20.0% 19.57%

• O  nTrac, a new shipping company to Boise, leased 49,500 SF of space in Airport Distribution Center.

Vacancy Rate

17.39% 16.42%

15.0% 12.38%

11.23%

9.78% 9.14%

9.11%

5.0% Q1

Q2

Q3

2009

Q4

Q1

Q2

Q3

2010

Q4

Q1

Q2

Q3

2011

Q4

Q1

Q2

Q3

2012

Q4

Q1

• R  ugby Architectural Building Products leased 53,000 SF at 12000 Executive in West Boise. They are moving their operations from Amity Road in Southeast Boise. • H  ayden Beverage expanded into an additional 30,000 SF in their current location on Gowen Road.

11.22%

10.0%

Market Activity

Q2

2013

• I daho Specialized Transportation leased 34,000 SF on 20th Street in Nampa. This is their second Nampa location. • G  laz-Tech purchased a 56,600 SF building on Amity Road in Boise. They will move their operations from Nampa.

OUTLOOK Absorption will be positive for the year, but will likely be lower than 2011 and 2012 levels. Vacancy is expected to remain in the 9 percent range through the end of 2013. There will continue to be a disparity between newer, quality industrial space that is in high demand and a surplus of aging product that is increasingly difficult to lease. Industrial land sales will continue to pick up as users are motivated to build their own space due to a lack of suitable options on the market. Lease rates for quality product should continue to increase. Although rents are on the rise, they are not yet at the level needed for speculative construction to make economic sense for developers. In addition to depressed rents, construction costs and land values are steadily rising. Lease rates will likely need to rebound at least 10 to 20 percent over current levels before spec construction will pencil. As the residential recovery continues, business will gain traction for contractors that made it through the recession. The housing market will also create opportunities for new startups to occupy incubator space. It remains to be seen how interest rate hikes could impact the housing recovery, but cautious tenants are well-positioned to handle any fluctuations.

Devin Pierce 208.947.0850 devin@tokcommercial.com

Gavin Phillips 208.947.0812 gavin@tokcommercial.com

Scott Raeber, CCIM, MBA 208.947.0802 scott@tokcommercial.com

Industrial 6


RETAIL WATCH Retail Net Absorption — Overall Market

Absorption was flat in the first half of 2013, but transaction volume remained healthy. Net absorption should improve in the second half of the year as construction is completed on a new Walmart on Overland near Meridian Road and at The Village at Meridian, where a movie theater and numerous restaurants will open in the coming months.

1,034,000

1,000,000 827,000

800,000

Square Feet

While total vacancy increased slightly in the first half of 2013, unanchored vacancy continued to improve, declining to 16.4 percent. Unanchored vacancy has declined for 15 consecutive quarters, dating back to 2009 when it was over 25 percent. As a result, projected supply declined to 18 months, lower than both the office and industrial sectors.

1,200,000

600,000 400,000

391,000 289,000

200,000 35,000 16,000 YTD

-200,000 -400,000 -600,000

-362,000

2004

2005 2006 2007

2008 2009 2010

2011

2012 2013

Retail Transactions by Tenant Origin Based on transactions recorded over past 12 months

Many national retailers are opening their first stores in the Boise market, including a Trader Joe’s currently under construction in downtown Boise. Multiple restaurants are opening their first Idaho locations at The Village at Meridian, including Toby Keith’s I Love This Bar & Grill and Yard House.

New to the Valley 10% Expansion 42%

Moving Location 17%

The food service industry continues to be a bright spot for retail, with new and expanding restaurants taking space across the valley. Secondgeneration restaurant space is in high demand as tenants seek spaces where impact fees have already been paid.

Local Startup 31%

Construction is on pace for over half a million square feet in 2013, much of which is being built with retailer commitments in place. Speculative construction will continue to face challenges for developers due to the increased cost of construction coupled with tenant rent expectations.

Retail Construction

Retail Lease Rates by Subtype *Annual Triple Net lease rates $24.00

$23.50

401,000 Projected

457,000

372,000

0

Demand for premium space is up, pushing lease rates higher along the Eagle corridor and in downtown Boise as tenants compete for limited space. In some cases, landlords are not accepting below-market offers because they are confident they can find tenants to pay the asking rate. Although rents for premium space are pushing record highs, overall rents are still 25 percent below pre-recession levels. Concessions, such as free rent, are occurring less frequently as demand rises and the market recovers.

$25

779,000

1,500,000

Class A Class B

Total Construction Speculative Construction

1,384,000

$21.00 1,200,000

$20

$18.25

$13.00 $11.05

$11.05

$11.75

$10

$5

Square Feet

Lease Rate

971,000 $14.65

$15

900,000 780,000

600,000

541,000

558,000

555,000 Projected

2012

2013

300,000 227,000

N/A

$0 Community Center

Neighborhood Center

Power Center/ Mall

Bob Mitchell, CSM 208.947.0836 bob@tokcommercial.com

178,000 23,000

0 Single Tenant

Strip Center

Mark Schlag, CCIM, CLS 208.947.0817 marks@tokcommercial.com

2005

2006

2007

2008

2009

2010

2011

Ben Zamzow, CCIM, SCLS 208.947.5514 benz@tokcommercial.com


Retail Net Absorption — Submarkets Retail Summary

40,000 Downtown 25,500

30,000 Toys “R” Us & Babies “R” Us leased 50,300 SF

Square Feet

20,000 10,000

Nampa 13,400

Caldwell 8,800

Meridian 11,000

South Meridian 15,200

Central 12,900

Change from last:

Year

Quarter

Lease Rates

North 10,000 Airport 0

0

Southeast -2,500

Big 5 Shops Toys “R” Us vacated 50,000 SF

-10,000 West -11,800

Eagle -11,800

Absorption

-20,000 -30,000 Southwest -34,100

-40,000

Vacancy Rates

Five Mile Plaza 14,800 SF vacated

Construction

Retail Historical Vacancy 30.0%

Unanchored Vacancy: excludes anchored centers Total Vacancy: anchored and unanchored centers

• S ockeye Brewing completed construction on a new brewery near Cloverdale & Fairview. Crooked Fence Brewery opened at State & Glenwood.

25.30%

25.0%

Vacancy Rate

24.13% 21.99%

• Murano  Beauty Academy opened in the 10,000 SF former Oliver Finley space at Fairview Plaza West.

20.62%

20.0%

16.35%

14.30%

15.0% 12.12%

10.0% 8.66%

Q1

Q2

Q3

2009

Q4

Q1

Q2

Q3

2010

Q4

Q1

• Toys  “R” Us and Babies “R” Us consolidated into a 50,300 SF anchor space in The Village at Meridian. • R  ue 21 and Hallmark leased a combined 10,000 SF at the Treasure Valley Marketplace in Nampa. Rue 21 also opened a new location at Plantation Shopping Center.

12.50%

5.0%

Market Activity

Q2

Q3

2011

Q4

Q1

Q2

Q3

2012

Q4

Q1

8.79%

• D  estination XL leased 9,700 SF in Meridian Crossroads located at the southeast corner of Eagle & Fairview.

Q2

• Chipotle  Mexican Grill, Which Wich, and Sleep Train leased a combined 9,000 SF at The Village at Meridian.

2013

OUTLOOK Leasing activity should continue at a strong pace, especially for second-generation restaurant space and the few remaining prime retail locations. Absorption should increase significantly in the latter half of the year, primarily due to construction of a new Walmart on Overland Road and additional retail space at The Village at Meridian. Despite strong projected absorption, vacancy is expected to rise above 9 percent until the new product is fully leased. Overall lease rates should slowly increase, but rents will still lag behind the increase in demand. Construction costs, anticipated increases in taxes, and limited availability of premium space will prevent rents from growing rapidly and could also impact deal velocity. Construction activity will likely slow after the projects already underway are completed. A lack of desirable space may keep some retailers from expanding or entering the Boise market. However, interest should be strong for the limited anchor spaces still available, including the former Toys “R” Us on Milwaukee and space at Meridian Crossroads. Trader Joe’s opening in 2014 should benefit the downtown area and bolster activity surrounding BoDo.

Brianna Hansen 208.947.5519 brianna@tokcommercial.com

Retail 8


INVESTMENT WATCH

With fewer distressed and bank-owned sales occurring, sellers will find fair market prices for their properties. Accurate sale comparables are helping guide appraisals and providing sellers with valuable information as they position their assets. Many properties with fair market pricing are receiving multiple offers. Some of today’s sellers were yesterday’s buyers of distressed properties. These sellers have worked to stabilize the property with the goal in mind to flip the property.

Investment Sales Volume Based on disclosed transactions in the Boise MSA

$450 $410M

$400 $350 $300

$ in Millions

Transaction volume in the first half of 2013 has already surpassed 2012’s total and is on pace for its strongest year since 2008. The gap between buyer and seller expectations has narrowed, leading to increased sales activity. However, uncertainty continues to suppress activity. Buyers remain risk averse, primarily seeking stabilized assets with strong market fundamentals.

$250

$227M

$200 $150

$158M

$99M

$100 $61M

$0

2004

2006

2007

2008

2009

Cap Rate

7,400 SF

$750,000

8.30%

Retail 22%

Provided by Ada Real Estate Surveys

$950,000

8.10%

Apartments

170 units

$17,000,000

6.10%

Medical

5,500 SF

$2,000,000

7.10%

98%

Percentage

10,000 SF

2013

Multifamily Occupancy

Sale Price

Retail

2011

Office 51%

100%

8.50%

2010

Based on disclosed transactions in the Boise MSA

Ada County Only

Size

96%

96.0%

95.8%

96.2%

95.5%

94.4%

94.3%

94%

92%

90%

Mike Keller, SIOR, CCIM 208.947.0844 mtk@tokcommercial.com

2005

Multifamily 22%

Investment Sales Comparables Approximate values of actual transactions in the Boise MSA

$810,000

2012

$71M

Industrial 5%

Capitalization rates vary by product type, but most have stabilized in the 7 to 8.5 percent range. Higher cap rates still exist for distressed properties. Multifamily projects, viewed as having minimal risk, are in high demand, but the supply of quality product is low. These properties are seeing cap rates in the 6 percent range. Retail assets continue to trade, but there is concern about the long-term stability of some of these assets due to low market rents and high tenant improvement costs.

16,000 SF

$143M YTD

Investment Sales by Property Type

With interest rates remaining low, investors are more comfortable assuming or placing new debt on properties. Cash buyers still exist, though not at the levels seen in the past few years. Lenders are seeking well-capitalized investors and these buyers are receiving competitive offers from banks to fund their loans.

Industrial

$115M

$50

Out-of-state buyers are attracted to Idaho’s higher capitalization rates and the ability to purchase quality product in the $1 to $2 million range. The downside is that local investors are facing heightened competition with out-of-state investment groups that are more aggressive and want to close transactions quickly.

Office

$220M Projected

$227M

$220M

John Stevens, CCIM 208.947.0814 john@tokcommercial.com

2006

2007

90.5%

90.6%

2008

2009

2010

2011

2012

Jim Boyd 208.947.5522 jim@tokcommercial.com

2013

Through April


Boise Capitalization Rates 11.0%

Investment Summary

Office Industrial Retail

9.0%

Change from last:

Multifamily

10.0%

Year

Quarter

Transaction Volume 8.9% 8.6%

8.0%

7.0%

8.2%

8.0% 7.9%

8.0%

7.3%

Boise Cap Rates National Cap Rates

6.7%

6.0% 2004

2005

2006

2007

2008

2009

2010

2011

2012

Interest Rates

2013

National Capitalization Rates 9.0%

8.8%

Market Trends

Office

8.7%

Industrial

8.5%

Retail Multifamily

8.0% 7.9%

7.6%

7.0%

7.0%

6.4%

6.0%

5.0%

5.7%

Q1

Q2

Q3

Q4

Q1

2010

Q2

Q3

2011

Q4

Q1

Q2

Q3

2012

Q4

Q1

Q2

• T ransaction volume for the first half of 2013 has already surpassed the 2012 total. • Projected  sales volume is on track to be the highest since 2008. • L ocal capitalization rates, with the exception of office, have declined in 2013. Most cap rates have stabilized in the 7 to 8.5 percent range. • N  ational cap rates have flattened in 2013. Industrial product has seen the largest decline in the past year. • I nvestors are beginning to put more properties on the market as distressed sales become scarce and more market comparables are available for accurate pricing. • M  ultifamily projects continue to be in high demand, but there is limited supply of quality product available.

2013

OUTLOOK Investors will continue to seek stabilized properties and values for these assets should rise with the market recovery. Interest rates remain low, but are beginning to show signs of future rate increases. Rising construction costs will limit future development and this should only drive up demand for current inventory. However, it could also cause investors to shy away from purchasing older properties due to the increased cost of tenant improvements and renovations. Inflation will remain on hold for the near future but remains a long-term probability. Boise is unlikely to see another large wave of properties being taken back by lenders. The market recovery has put both lenders and property owners in a better position for refinancing. However, there will still be a small pool of distressed product for years to come. Capitalization rates are expected to remain in the 7 to 8.5 percent range locally. Increasing interest from out-of-state buyers is anticipated as cap rates in larger metropolitan areas remain as low as 5 to 6 percent. Many of these investors view the Boise market as having greater upside and less long-term risk.

Peter Oliver, SIOR, CCIM 208.947.0816 peter@tokcommercial.com

Pam Sprute 208.947.5508 pam@tokcommercial.com

Investment 10


LAND WATCH Commercial Land Sales by Planned Use

COMMERCIAL LAND

Based on disclosed transactions in the Boise MSA Past 12 Months

$15

Commercial land activity has increased in 2013 and the buyers are still primarily end users. While commercial occupancy rates have improved, lease rates are still 20 percent below pre-recession levels. As a result, purchasing land for speculative development remains mostly on hold.

100

80

$12

As sale activity has steadily increased, land values have risen in all sectors. Retail land saw a modest increase of 4 percent, while industrial land values are up 10 percent over last year. However, increasing construction costs may put a damper on this recovery. With the cost of materials and labor going up, developers will look to make up the difference by offering less for their land acquisitions.

60

$9

Retail pad sales are a bright spot for the commercial land market, especially in high demand areas like the Eagle Road corridor. However, there is a limited number of top tier locations available. Office lot sales have been stagnant and there are still several partially developed office parks that need to be absorbed. Medical office lot sales are on track to surpass last year.

$13.4M

38.4 acres

40

20

$3

$2.5M 10.2 acres

0

Office

Industrial

$0

Retail

Commercial窶年ew Construction Permits Source: Construction Monitor

Ada & Canyon Counties

400

382

RESIDENTIAL LAND

376 344

The housing market continues to heat up, with Idaho home prices rising at the fourth fastest rate in the nation, according to the Federal Housing Finance Agency. Interest rates have remained low and demand outweighs limited supply, creating competition among buyers. Midway through 2013, single family permits are up 9 percent over the first half of 2012. With the diminishing housing supply, raw land activity has increased as many smaller builders look to buy finished lots. Most developers now prefer smaller subdivisions, or projects with phases that can be purchased one at a time, as opposed to large projects that take years to develop. Builders who weathered the recession are developing projects cautiously and trying to not get too far ahead of the market.

300 269

200

200

158 Projected 132

100

83

82 66

0

2004

Bank-Owned Activity Ada & Canyon Counties

70%

$6

$5.3M

2005

2006

2007

2008

2009

2010

2011

76 YTD

2012

2013

Single-Family Home Permits

Percentage of bank-owned land sales

Commercial Land Residential Land

12,000

Source: Construction Monitor, single family only

Ada & Canyon Counties

10,528

60%

10,000 50%

50%

48%

8,000

43%

7,500 6,999

39%

40%

38%

6,000 30%

26%

24%

23% 20%

20%

0%

4,000

3,437 2,717

10%

9%

1%

2009

2010

Michael Ballantyne, CCIM 208.947.0831 mjb@tokcommercial.com

2011

2012

2013

0

Lenny Nelson 208.947.0806 lenny@tokcommercial.com

3,164 Projected

2,216

2,000

1,693

7%

2008

$ in Millions

Acres

82.0 acres

2004

2005

2006

2007

2008

2009

1,533

2010

1,465

2011

1,519 YTD

2012

2013


Land Sales Activity

MIDDLETON EAGLE STAR

Av e

Residential 20+ acres $25k per ac

10

th

Industrial 1–2 acres $2 per sf

2n

d

Retail Pad 0.5 acres $15 per sf

St.

Retail Pads 0.5–2 acres $14 per sf Multifamily 2–3 acres $15–$17 per sf

CENTRAL BOISE

Industrial 1–2 acres $3 per sf

Multifamily 10+ acres $3 per sf

SOUTHWEST BOISE

SOUTH MERIDIAN

Residential 15+ acres $18k–$35k per ac Ten Mile

Happy Valley Rd.

Industrial 1–2 acres <$1 per sf Southside Blvd.

Powerline Rd.

12th Ave.

Midland Blvd.

Lake Lowell

Greenhurst

McDermott Rd.

Residential 20+ acres $43k–$53k per ac

Amity Rd.

Multifamily 2 acres

DOWNTOWN BOISE $18 per sf

Locust

Retail 4 acres $7 per sf

Retail Pad 0.5 acres $7–$8 per sf Multifamily 6 acres $2 per sf

Industrial 1+ acres $2–$3 per sf

Vista

. Av e

Retail Pads 0.5 acres $11–$12 per sf

Industrial 1–3 acres $2–$4 per sf

Multifamily 1–2 acres $2–$3 per sf

Overland Rd.

11 th

Industrial 1–3 acres $1–$2 per sf

Retail Pads 1–2 acres $8 per sf

y

rrit

Ga

Emerald

Residential 20+ acres $18k per ac

Curtis

Retail 4+ acres $3 per sf

CALDWELL BLVD

Retail Pads 1–2 acres $19–$20 per sf

Orchard

55

Multifamily 2–4 acres $2–$3 per sf

WEST BOISE Fairview Ave.

Meridian

d. lv B

Multifamily 4–10 acres Franklin Rd. $18k per ac

Can -Ada R.

l el

Franklin Rd.

w

Northside Blvd.

d al -C

Residential 5–10 acres $10k per ac

Industrial 2 acres $2–$3 per sf

Office 0.5 acres $8–$9 per sf

Multifamily 2 acres $9 per sf

SOUTHEAST BOISE

Multifamily 0.5–2 acres $2-$4 per sf

Industrial Gow en 1–20 acres $1–$2 per ac Cole

IDAHO CENTER

NORTH MERIDIAN

Milwaukee

Office Pad <0.5 acres $7–$10 per sf Cherry Lane

Maple Grove

Middleton Rd.

pa am N

Residential 20+ acres $10k per ac

Ustick Rd.

NORTH BOISE

Retail Pad 0.5 acres $17 per sf

er Riv

Retail 0.5–2 acres $4–$5 per sf

e is Bo

Industrial 1–2 acres Ustick Rd. $2 per sf

Retail Pads 0.5–2 acres $8–$10 per sf

McMillan Rd.

Industrial 0.5 acres $2 per sf

Chinden

Five Mile

CALDWELL

26

Cloverdale

20

Eagle

19

River

.

Boise

Office 0.5 acres $3–$4 per sf

Industrial 10+ acres <$1 per sf

Broadway

44

AIRPORT

Office 1 acre $5 per sf

Industrial 18 acres $1 per sf

SOUTH NAMPA KUNA Deer Flat Rd.

Kuna Rd.

Residential 40 acres $4k–$5k per ac

King Rd.

OUTLOOK Retail pad sales will comprise much of the commercial land activity for the remainder of 2013. While most land sales will be to end users, there is an opportunity for well-capitalized developers to acquire raw land for a reasonable price and wait until development makes economic sense. Market fundamentals for commercial space will continue to strengthen through the end of the year, closing the gap between current market rents and the lease rates needed for speculative development. However, this gap will not be bridged in the near term, except for parcels in highly desirable locations. Bank-owned land activity suppressed land values between 2009 and 2012. However, with most of these assets disposed of, values should continue to rise. The volume of bank-owned commercial land sales is at its lowest level since 2008, prior to the start of the recession. Residential building will continue to be strong although builders and buyers will be paying close attention to interest rates. With a low supply of houses on the market, builders will look for land to acquire and develop in order to meet the high demand for homes. Raw land in Ada County will continue to be the most desirable for developers. Multifamily land is still sought after, but with a number of projects already in the pipeline, the number of new projects may taper off.

Land 12


CANYON COUNTY WATCH Canyon County Map

OFFICE: Overall office vacancy in Canyon County has increased from 13.4 percent to 13.8 percent midway through 2013. However, multitenant vacancy improved from 22.1 percent to 21.3 percent. There is limited Class A space in Canyon County with vacancy in these buildings at just 4 percent.

. Av e th

19

River

20

CALDWELL

26

Middleton Rd.

McMilla

Ustick Rd.

Ustick

N

IDAHO CENTER

pa am -C

Cherry Can -Ada R.

.

Franklin Rd.

d lv

lB el

Northside Blvd.

dw al

Frankl

55

CALDWELL BLVD

y

rrit

Ga

11 t

h

Av e

.

INDUSTRIAL: Industrial vacancy has improved in both Nampa and Caldwell. When Transform Solar vacated 254,000 SF last year, vacancy in Nampa jumped nearly 4 percent. Since that time, absorption in Nampa has been strong, particularly in the Caldwell Boulevard submarket which has seen 86,000 SF of positive absorption in 2013, the most absorption in the entire Boise MSA. However, over one million square feet of vacant space still remains in this submarket.

Boise

10

Transaction volume is up nearly 50 percent over 2012, but absorption remains stagnant, indicating that nearly as many spaces have come online as were leased. The Idaho Center submarket is the healthiest in Canyon County, while Caldwell has the most negative absorption year-to-date. Absorption in Caldwell will improve with the completion of the 95,000 square foot West Valley Medical Building later this year.

2n

d

St.

McDermott Rd.

Southside Blvd.

Powerline Rd.

RETAIL: Transaction volume and absorption are both up nearly 40 percent compared to 2012. As a result, vacancy has improved from 8.5 to 8.1 percent this year. Unanchored vacancy also improved to 13.6 percent. Retail vacancy in Canyon County is lower than Ada County.

Greenhurst

12th Ave.

Lake Lowell

Happy Valley Rd.

Amity Rd.

Midland Blvd.

Lease rates are also on the rebound. All submarkets have seen rents increase, with Caldwell Boulevard seeing the highest lease rates. With fewer $0.20 listings available, actual rents have risen in Caldwell, where the average has increased to $0.34 per square foot (monthly NNN lease rate).

Locust

SOUTH NAMPA

Deer Flat

Retail pad activity remains strong with sales to AutoZone, Discount Tire, and Jimmy Johnâ&#x20AC;&#x2122;s. Retail shops are under construction at Canyon Plaza, anchored by Shopko and WinCo, and most of the building is pre-leased. Lease rates remain a mixed bag, with rents rising in some areas, but still declining in others.

Kuna Rd.

King Rd.

Canyon County Transactions by Tenant Origin

Average Canyon County Lease Rates Caldwell Blvd

Idaho Center

South Nampa

Caldwell

Asking

$12.00

$16.00

$12.00

$13.25

Actual

$11.00

$15.45

$12.00

$12.85

Asking

$0.41

$0.39

$0.33

$0.40

Actual

$0.39

$0.37

$0.31

$0.34

Based on transactions recorded over past 12 months

Local Startup 14%

Office

(Annual Full Service)

Industrial (Monthly NNN)

Retail

(Annual NNN)

Asking

$9.95

$20.00

$12.50

$10.00

Actual

$8.60

$19.65

$11.20

$10.00

Expansion 37%

New to the Valley 17%

Moving Location 32%


Canyon County Vacancy 30.0%

Office Industrial Retail

25.70%

Change from last:

25.0% 20.0% Percentage

Vacancy Summary Year

Quarter

Office Vacancy

18.30% 16.60%

15.0%

14.00%

Industrial Vacancy

13.50% 11.90%

10.0% 6.90%

6.70%

6.00%

5.0%

6.10%

4.40%

Retail Vacancy

1.10%

0.0% Caldwell Blvd

Idaho Center

South Nampa

Overall Vacancy

Caldwell

Canyon County Net Absorption Office Industrial Retail

100,000 85,900

80,000

• L os Betos Mexican Restaurant opened two new locations in Canyon County, one in Nampa and one in Caldwell.

Square Feet

60,000

• N  orthwest Interiors leased 8,000 SF of industrial space on Karcher Road.

40,000

• M  ontana Timber Products leased 16,000 SF on Arthur Street in Caldwell.

16,700

20,000

12,200 6,100

8,800

7,800

3,900

0 -6,700

-6,600

-6,900

-40,000

• T he City of Caldwell purchased the 30,000 SF former King’s Building in downtown Caldwell.

-35,800

Caldwell Blvd

Idaho Center

• R  eal Life Community Church leased 7,400 SF of the former Lloyd Lumber showroom space on 14th Street. • Idaho Specialized Transportation leased 34,000 SF on 20th Street in Nampa.

-20,000

-60,000

Market Activity

81,300

South Nampa

Caldwell

• H  abitat for Humanity leased 9,000 SF in Nampa.

OUTLOOK Canyon County’s Office market will see a boost in the second half of 2013 when the West Valley Medical Building is completed in Caldwell. Much of the 95,000 SF building has already been pre-leased, though some tenants will be vacating other spaces in Canyon County. Medical activity will remain strong as physicians seek to affiliate with hospitals and medical services catch up to population growth in Canyon County. Industrial will continue to be a focal point of activity. Nampa and Caldwell lead the valley in positive net absorption with over 80 percent of the Boise MSA’s total. Although the Caldwell Boulevard submarket still has over one million square feet of available industrial space, nearly 70 percent is comprised in two vacant facilities, formerly occupied by MPC and Rogers Seed. Excluding these two large vacancies, vacancy in Nampa drops from over 18 percent to less than 7 percent vacant. Despite having a healthy retail vacancy of 8.1 percent and projected supply of 18 months, retail construction will be mostly limited to single tenant, owner-occupied buildings until lease rates have risen to a level where speculative development makes economic sense. An exception will be shops space adjacent to the new library in downtown Nampa, slated to be completed this fall. Pads in high profile locations near the freeway will continue to be in high demand.

Canyon County 14


ECONOMIC OUTLOOK By Dr. Brian Greber The first half of 2013 came in like a lion, albeit a tame one, but it’s going out like a lamb. By Q1 2013, the economy had forgotten its electionyear stall and we found ourselves on the road to recovery. The threat, however, that the Federal Reserve would relax quantitative easing jeopardizes that recovery. From Q3 2009 through Q3 2012, U.S. GDP grew at a modestly respectable annualized rate of 2.25 percent. In Q4 2012 the presidential election, reduced government spending, and diminished private investment led to an economic stall—which translated into a 0.1 percent annualized growth in GDP. Things began to look up in Q1 2013—annualized GDP growth achieved 2.4 percent. Personal consumption was up 3.4 percent and business investment was up 9 percent. The robust first quarter also brought good news on the jobs front. Nationally, the U.S. added over 900,000 jobs in the first five months. Unemployment fell to 7.5 percent by April. The resurgence in consumer confidence led to improved housing markets—U.S. permits grew at its highest level since the first half of 2008 and 65 percent higher than we saw between 2009 and 2010. In June the Federal Reserve, taking note of these trends, turned its attention from unemployment and growth to concerns over inflation. With this shift, the Fed announced it could slow bond repurchasing in the second half of 2013, if economic conditions have improved. The announcement signaled the potential end of low interest rates that we have enjoyed over the last five years. Within four days of the Fed’s announcement, the Chinese Central Bank called attention to debt problems in the Chinese banking system. Taken together, these two decisions resulted in a 5 percent drop in the U.S. stock market over three days. A financial industry crisis in China has three impacts on the United States: (1) China is a growing market for U.S. exporters and a slowing Chinese economy will negatively impact demand for U.S. goods and services; (2) China holds massive currency reserves (principally in dollars) and if financial issues trigger a liquidation of foreign reserves, the dollar will be devalued and inflationary and interest rate pressures will grow in the United States; and (3) China holds large quantities of U.S. bonds that they may liquidate in a crisis, resulting in falling bond values and rising interest rates. A misstep in China could spell global contagion and a significant double dip in the U.S. economy. All domestic and international indications are for rising interest rates in the months ahead. We will likely continue to see a few quarters of decent economic growth as consumers take advantage of remaining low financing rates and businesses seek ways to meet consumers’ needs. This momentum should continue into 2014. Businesses are apt to be tentative on longer term investments—many will assume a “wait and see” attitude for the rest of the year. The wildcard for 2014 and beyond is China and how the country manages its financial issues. For now, I remain cautiously optimistic. My optimism extends to Idaho. Idaho’s economy follows national trends, but with a lag. Idaho’s GDP grew by 2.0 percent from 2010 through 2012, while the national economy grew by 2.1 percent over the same period. Since 2010, Idaho has added about 36,000 jobs (an increase of 6.1 percent) and about a quarter of these since Q4 2012. Unemployment dropped to 6.1 percent in 2013 from a peak of 8.8 percent in 2010. Figures 1 and 2 show that Idaho’s economy continues to migrate away from durable goods manufacturing (items such as electronics and industrial equipment). We are a service-driven economy. This growth is not in retail trade jobs, but in information, financial, business, education and health services. Non-durable goods manufacturing (items such as food) has remained fairly stable in Idaho, in large part due to continued growth in the dairy and dairy-processing sector.

Goods and Services-Producing Employment in Idaho 800,000

Goods-Producing Employment in Idaho 150,000

Service Producing Goods Producing

700,000 120,000

600,000

Durable Nondurable Construction Natural Resources

500,000 90,000 400,000 60,000

300,000 200,000

30,000 100,000 0 1990

1995

Dr. Brian Greber

2000

2005

Senior Economist – ECONorthwest Adjunct Professor of Economics at Boise St.

2010

• • • •

15 Economic Outlook

2013

0 1990

1995

2000

2005

2010

2013

Senior Economist with ECONorthwest and Adjunct Professor of Economics at Boise State University. Received his BS and MS degrees from West Virginia University and his PhD from Virginia Tech. 19 years of private sector experience in manufacturing management, economic research, product development, marketing, technology development, strategic planning, and change management. Retired as VP of Marketing & Technology at Weyerhaeuser in 2009 after 16 years with the company.


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Market Watch MidYear2013