It takes a combination of confident consumers and strong businesses to help keep investors moving forward in the $25 trillion world of commercial real estate.
And if steady or even slow growth trumps no growth, then a sense of optimism for continued growth and prosperous opportunities may best characterize the outlook for the CRE market in the Treasure Valley in the coming year.
A “mixed bag” but performing better than many other markets nationally is how Kelly Schnebly, a retail associate and partner with Colliers described the local CRE industry.
“There is probably a little bit different story here in the Treasure Valley compared to some of the other bigger markets,” said Schnebly, a Boise area market veteran since 2014. “There is a lot of positivity here around many of the things that will continue to drive growth.”
For Holly Chetwood, a partner who joined TOK Commercial Real Estate in 2015, both Ada and Canyon counties remain attractive landing spots for those looking in from outside the market.
“We’re still very lucky and still very much an inbound market locally,” Chetwood said. “Even though the growth in our market has slowed a little bit, we still see a lot of demand from those outside the state who want to be in our market.”
Post pandemic, it’s been nothing short of a “challenging few years” for the CRE industry, but Schnebly believes things are on the upswing and moving in the right direction.
“We’re certainly a little more stable because of the growth we’ve experienced here in Southern Idaho,” Schnebly said. “And we were a little more protected from some of the losses and higher vacancy rates you saw happening in the bigger markets.”
Figures detailing retail vacancy rates in Ada County continue to float between 3% and 4%, with office space vacancy holding at about 9%, significantly lower than some major markets such as San Francisco, which is still experiencing vacancies in the ballpark of 26%.
And with the work-from-home trend still a factor in many parts of the country, including Idaho, those who own offices must still deal with underutilized space, or decide to spend more money to convert traditional office locations into more flexible or hybrid workspaces.
“When you talk to retailers here or outside of Idaho, those looking at this market, they are positive and optimistic about expanding their business here or growing what they already have here in place,” Schnebly said.
As the executive director of Summit Commercial Real Estate Group, LeAnn Hume said that on the retail side, her firm has been “busy longer” than what a cycle typically lasts.
“This is probably due to catching up with in-migration and demand for retail,” Hume said. “Construction costs are still a concern, as it is pushing rents to record-setting numbers. Getting a reliable labor force is a concern for all retailers at this point.”
A key player in the retail sector, quick-serve restaurants (QSR), remain another segment that is still generating strong interest in the local CRE market.
“We are seeing that drive-thrus which became such a necessity during COVID are no longer a huge priority for some fast-casual restaurants,” Hume said. “But quick-serve restaurants and fast food still consider drive-thrus a priority.”
A trend not lost on Chetwood, with a lot of interest, she noted, from some of the big-name brands such as McDonald’s, Burger King and even Starbucks.
“There is a lot of demand for new uses or restaurants that would like to be here, as well as those who are here and want to expand to keep up with the massive amount of growth we have seen, particularly of the growth heading west toward Caldwell in Canyon County,” she said.
However, Chetwood said zoning changes enacted in the city of Boise last year have made it “significantly harder” to find drive-thru locations along major corridors throughout the city, including some major stretches on State Street and both Vista and Broadway avenues.
“It makes it challenging to change an existing use over to a drive thru,” she said. “If it already is being used as such with a bank or another restaurant, it is easier to get the use permit within certain zones.”
Throughout Meridian, Schnebly said retail outlets continue to flourish, particularly along the primary stretches of Chinden, Eagle and Ten Mile roads.
“People still have a lot of interest in Eagle Road even though it is pretty built up at this time,” she said. “A lot of people are also still interested in the Boise market, but it’s just difficult trying to find the right spot for some.”
According to Chetwood, retail interest “remains high” in many parts of the valley, whether it is The Village at Meridian, the Boise Towne Square Mall or the Treasure Valley Marketplace in Nampa.
Plus, she said many are taking a “wait-and-see” approach as to what might happen with additional space and buildings near Scheels at the District at Ten Mile.
“There continues to be demand wherever there are large retail pockets,” Chetwood said. “Anywhere there is a large, big-box hub, there is going to be interest in businesses wanting to be there as well.”
And Idaho certainly has plenty of retail pockets connected to hubs.
“Investors have an eye on Boise and Idaho in general as a market that has consistent growth and opportunity,” Hume said. “Buyers seek out CRE in Idaho for stability and opportunity.”
On the industrial side, vacancies remain at about 7.5% countywide, slightly higher than the almost 5% average persistent during the past five years, a figure that Schnebly said can be construed as a “positive” in that it gives investors options they may not have had otherwise.
Nampa and Caldwell, as well as the urban renewal district of South Boise, and south of the Boise Airport, also continue to experience rapid growth in the industrial sector.
“In our market it feels as if we are in a bit of a bubble in some ways because there is so much optimism here around Micron and overall growth,” Schnebly said.
Both Micron and the Meta data center project in Kuna are unquestionably driving a good portion of the industrial segment in Southern Idaho.
“At this point it is the folks who are involved who are working to build Micron, the electricians, the trades people, those who provide the parts,” she said. “They all need more space. That has created some immediate demand in the market.”
And hope that such demand will lead to positive gains.
Persistent inflation, high interest rates and a glut of CRE space made available with many workers performing their jobs at home have all been contributing factors impacting the sector the past four years.
“I think interest rates have kept commercial real estate moving at a slower pace,” Schnebly said. “Lower interest rates are not necessarily on the horizon, but that could certainly change things if lending rates were to fall.”
When it comes to interest rates, several market factors play a key role, including supply of capital and the demand for loans, inflation expectations and the overall economic outlook.
And while many involved in the industry are weighing in with their thoughts and opinions on where they think the CRE market is headed, no one really knows for sure.
“It’s really up in the air and I don’t think anyone really knows what will happen,” Chetwood said. “We don’t have a crystal ball to know how interest rates will be impacted moving forward. It’s really hard to tell at this juncture.”
With President-elect Donald Trump returning to the White House in January, a renewed optimism for vast opportunities, clarity in the market and a sense of stabilization could be on the horizon for the CRE sector.
“In the commercial real estate world, there has been this distaste for all of the uncertainty that led up to the election,” Schnebly said. “Having it over with makes it feel, to an extent, there is a more predictable and easier environment in which to work.”