2021 Commercial Outlook
After talking with three commercial agents about their outlook for the future, we have determined that the Treasure Valley is a fantastic place to live. The only downside is that someone let the secret out, and everyone else wants to live here too! In the early days of 2020, business was booming, and the valley was dealing with exponential growth. Not much has changed. Although Covid brought everything to a screeching halt and we saw unemployment rise from 3.5% to 11.8%, our market has recovered quickly. In the end, the shutdown sped up the demise of dying national franchises and gave the valley a brief respite from growth.
Unlike many in the country, our unemployment rate is back down to 4%, and we are struggling to find talent, especially as new businesses relocate here. Whether people are escaping struggling cities or looking for a slower pace, the treasure valley continues to grow, and our three commercial agents are here to help us make sense of it all and share why they are optimistic about the future of the valley.
National vs Local Markets
Holt Haga works for BVA development which focuses on strategic capital investments and large-scale commercial development. BVA’s portfolio includes office, industrial, retail, medical, and even a little residential development, with Class A office buildings comprising 75% of their core activities. Haga believes it is crucial to understand that not all markets are created equal. “National media outlets paint a pretty bearish outlook. They are reporting on primary markets in New York City, San Francisco, and Seattle. What we are seeing in Boise is just a completely different story.”
Haga suggests that Boise has rebounded so quickly because companies are leaving these primary markets and coming to tertiary markets like Boise. “I think we are going to see a continuation of trends that existed long before Covid, such as the hub and spoke models. You have companies reducing the size of their footprint in those primary markets and creating tertiary markets (spokes) or regional headquarters. So, the Treasure Valley and Boise will certainly continue to benefit from that.”
Waiting & Watching
Lew Manglos with Colliers International focuses on real estate property management, brokerage, leasing, and sales. Most of his work is in the Treasure Valley, and he sees the most activity in our industrial and multifamily sectors with low rent growth and high demand. In contrast, Covid has more significantly impacted the office and retail spaces.
While the market is healthy, Lew has seen more hesitation from tenants regarding expansion and leasing. “They are kind of waiting and watching. Generally, [tenants] haven’t made decisions to give up space. The vast majority are trying to continue to have office space. If we go back a year, some might have been looking to expand because they added employees. That same tenant is now more likely to wait and see how things shake out before they make a decision to move.” Ultimately Manglos expects things to return to the way they were before Covid, albeit with more flexible employee schedules.
Peter Oliver at TOK Commercial focuses on investment sales and leasing. He covers office space, industrial, retail, and multifamily. His time is split evenly between investment sales and leasing, mainly in the Treasure Valley. Like Manglos, Oliver agrees that tenants have been hesitant to act but that things are beginning to change as they gain more visibility. In fact, local companies have been quick to move in ways that national companies may regret later. While national companies made blanket mandates for return-to-work dates, they failed to look at markets individually.
In contrast, local companies have already pivoted and brought their workforce back to capitalize on the Boise market’s resurgence. Part of that pivot has been negotiating shorter lease terms until they have more certainty to move forward. “A lot of tenants were trying to do as short of a renewal as possible because they were trying to grasp what things look like on the other side.” With a typical lease term ranging between 3-5 years, businesses have been trying to do 1-2 year extensions instead. Even if they sign onto a longer lease term, they want the ability to terminate the lease even if there is a penalty. They want flexibility while simultaneously not losing their space and facing a price jump for a new build.
Community Of The Office
While some national companies are transitioning to a full-time work-from-home model, Oliver observes that local companies value collaboration and believe in-person work is important. Lucky for them, most employees want to come back. “Over the last year, the demand for mental health services skyrocketed. The WCA in Boise has seen an 84% increase in demand for their services. We are just not meant to be in solitary confinement. For a lot of people, their company is their community. It is their social life in a lot of ways, so I just don’t see [the office] going away.”
Standing In The Light
As Haga says, “In the early parts of 2020, everybody was kind of in the fetal position looking down a very long, dark tunnel wondering how far away the light at the end will be.” Trends, statistics, and maybe a little bit of optimism suggest that within the next 60-90 days, we will be standing in the light again. Fortunately for us, the area is very well positioned for when that day arrives.
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