market watch year-end 2012
DESCRIPTION
Commercial real estate Boise, Idaho analysis.TRANSCRIPT
YEAR-END 2012B O I S E M E R I D I A N E A G L E N A M PA C A L D W E L L
Your Guide to the Boise Commercial Real Estate Market
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NWB04209.TOK Ad.Final.pdf 1 1/4/13 11:06 AM
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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 8 3 7 0 2 • 2 0 8 . 3 7 8 . 4 6 0 0 • t o k c o m m e r c i a l . c o m
Thornton Oliver Keller’s Guide to Boise’s Commercial Real Estate Market Monthly Newsletter
Total vacancy declined from 12.4% to 12.3% in December, marking its lowest point since the 3rd quarter of 2008. Multi-tenant vacancy also declined last month to 17.4%, nearly 400 basis points below its peak of 21.2% in 2010. Apex Marketing leased 10,600 SF and Berkley North Pacific leased 18,400 SF in Meridian, near the intersection of Franklin & Stratford. These two large deals returned vacancy in Meridian to single digits for the first time since 2005 (9.8%). North Boise has had 4 consecutive months of vacancy improvement and is at its lowest point since Q2 2007 (15.3%). This is a marked improvement from the high of 22.3% in late 2008. Meanwhile Nampa has had 4 months of increasing vacancy, pushing this submarket to its highest point in the past year (13.7%).
Total vacancy and multi-tenant vacancy declined in December to 9.6% and 17.2% respectively. A 33,000 SF building sold last month in Southwest Boise, dropping vacancy in this submarket to 9.1%. The Meridian submarket’s vacancy dropped to 4.7% after a 13,000 SF tenant leased space near Franklin & Linder. This is the lowest vacancy has been in Meridian since mid-2008. Eddy’s Bakery, a subsidiary of the now bankrupt Hostess Company, vacated multiple spaces in the market last month, two of which were 10,800 SF off Caldwell Blvd and 21,300 SF on Federal Way. West Boise’s vacancy continues to improve with a 10,500 SF space leased along Emerald. This dropped West Boise’s vacancy to 12.3%, its lowest point since early 2010 and well below its high of 17.7% in the 3rd quarter of 2011.
Total vacancy declined in December from 8.7% to 8.6%. Unanchored vacancy declined for a 7th consecutive month to end the year at 17.0%. This is the lowest unanchored vacancy has been since mid 2007. The Pursuit Church leased the 16,000 SF former Ridley’s in the North End dropping North’s vacancy rate to 12.6%. The Meridian submarket continues to see new construction delivered with the 18,000 SF shops space now complete at the Eagle Island Marketplace near Chinden & Linder. Other submarkets with improving vacancy are Southwest (8.8%), Eagle (12.2%) and Caldwell (6.9%). Nampa has had 3 consecutive months of increasing vacancy, however still remains below the overall market at 8.5%.
5%
10%
15%
20%
25%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
17.38%
Total Vacancy
12.86%
8.66%
11.00%
20.62%
21.99%
Unanchored Vacancy
2010 2011 2012
5%
10%
15%
20%
25%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Total Vacancy
Muti-Tenant Vacancy22.04%
20.21%
17.15%
11.79%
10.71%
9.65%
2010 2011 2012
10%
15%
20%
25%
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Total Vacancy
Multi-tenant Vacancy
15.94%
21.08%
20.31%
14.61%
12.32%
17.40%
2010 2011 2012
Office
Industrial
Retail
12 Month ComparisonJan 2012 thru Dec 2012
Market Trends
Total Vacancy
Absorption Rate
New Construction
Total Vacancy
Absorption Rate
New Construction
Total Vacancy
Absorption Rate
New Construction
Office Review
Industrial Review
Retail Review
MARKET REVIEW:January 2013
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
-158,000 SF-56,000 SF
494,000 SF
1,159,000 SF
302,000 SF
-43,000 SF -67,000 SF
Industrial Net Absorption
17,000 SF
94,000 SF
2003 2004 2005 2006 2007 2008 2009 2010 2011YTD
5%
10%
15%
20%
25%
30%
25.30%
16.97%
20.38%
Unanchored vacancy: excludes anchored centers
Total vacancy: anchored and unanchored centers
24.32%
14.30%
9.31%8.09%
10.83%
15.25%
20.64%
11.37%
Retail Vacancy
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2007 2008 2009 2010 2011
Retail29%
Office40%
Storage1%
Industrial16%
Apartments14%
Increasing VacancyDecreasing Vacancy
n/c No Change
SUBMARKET MAP
VACANCY ABSORPTION SUPPLY
OFFICE 17.2% n/c +4,500 19.0 mo
INDUSTRIAL 7.6% n/c +200 14.7 mo
RETAIL 14.3% +10,300 41.5 mo
EAGLEVACANCY ABSORPTION SUPPLY
OFFICE 12.4% +60,100 16.1 mo
INDUSTRIAL 5.9% +27,100 13.5 mo
RETAIL 5.7% +245,300 12.2 mo
MERIDIANVACANCY ABSORPTION SUPPLY
OFFICE 11.2% +10,800 25.3 mo
INDUSTRIAL 15.7% -7,900 35.4 mo
RETAIL 7.3% +1,800 57.3 mo
CALDWELL
VACANCY ABSORPTION SUPPLY
OFFICE 19.8% -5,900 44.3 mo
INDUSTRIAL 8.5% +82,300 18.4 mo
RETAIL 10.7% -10,000 51.1 mo
SOUTHWESTVACANCY ABSORPTION SUPPLY
OFFICE 12.8% +33,200 23.2 mo
INDUSTRIAL 5.1% n/c 0 24.9 mo
RETAIL 13.2% +3,300 33.8 mo
SOUTH MERIDIANVACANCY ABSORPTION SUPPLY
OFFICE 12.1% +121,300 28.1 mo
INDUSTRIAL 16.6% +67,100 54.1 mo
RETAIL 8.0% +63,700 17.1 mo
NAMPA
Absorption analysis
Investment trends
Lease rate trendsVacancy analysis
Market analysis covering the entire Boise MSA by submarket
EXPERIENCE: results
Information deemed reliable, but not guaranteed. © 2013 Thornton Oliver Keller. All rights reserved.
Offi ce Market Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–4
Industrial Market Report . . . . . . . . . . . . . . . . . . . . . . . . 5–6
Retail Market Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–8
Investment Market Report . . . . . . . . . . . . . . . . . . . . . 9–10
Submarket Map & Statistics . . . . . . . . . . . . . . . . . . . . . 1–2
Economic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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 k c o m m e r c i a l . c o m
YEAR-END 2012
Land Market Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–12
Canyon County Market Report . . . . . . . . . . . . . . . . . 13–14
To S u b s c r i b e t o M a r k e t Wa t c h :Email us — [email protected]
Marc Stimpson & Kristi Larson, Editors
Candy Willcuts, Graphic DesignCover photo provided by: Jeff Osban Photography
Increasing VacancyIncreasing Vacancy
Decreasing VacancyDecreasing Vacancy
n/c No Changen/c No Change
SUBMARKET MAP
VACANCY ABSORPTION SUPPLY
OFFICE 16.0% +15,200 17.4 mo
INDUSTRIAL 7.7% n/c -100 11.3 mo
RETAIL 12.2% +23,800 29.0 mo
EAGLE
VACANCY ABSORPTION SUPPLY
OFFICE 9.8% +111,200 11.9 mo
INDUSTRIAL 4.7% +147,400 9.9 mo
RETAIL 7.6% +419,600 14.3 mo
MERIDIAN
VACANCY ABSORPTION SUPPLY
OFFICE 12.6% +6,300 33.4 mo
INDUSTRIAL 10.8% +180,900 20.3 mo
RETAIL 7.5% n/c +900 52.1 mo
CALDWELL
VACANCY ABSORPTION SUPPLY
OFFICE 19.2% n/c -300 42.7 mo
INDUSTRIAL 9.1% +72,800 17.2 mo
RETAIL 8.8% +12,500 34.0 mo
SOUTHWEST
VACANCY ABSORPTION SUPPLY
OFFICE 12.1% +54,400 22.5 mo
INDUSTRIAL 5.1% n/c 0 23.5 mo
RETAIL 14.3% -1,800 44.1 mo
SOUTH MERIDIAN
VACANCY ABSORPTION SUPPLY
OFFICE 13.7% +102,300 32.6 mo
INDUSTRIAL 19.7% -50,800 73.6 mo
RETAIL 8.7% +34,800 19.7 mo
NAMPA
Submarket Map 2
Submarket RankingsTop 5 in each category
Offi ce
Industrial
Retail
1. Downtown 5,527,954 SF2. West 4,152,750 SF3. Central 2,607,879 SF4. Meridian 2,049,653 SF5. Southeast 2,043,003 SF
Total Inventory 22,555,398 SF
1. West 249,916 SF2. Downtown 224,565 SF3. Meridian 194,840 SF4. Nampa 190,930 SF5. South Meridian 131,817 SF
Gross Absorption 1,458,074 SF
1. Meridian 111,222 SF2. Nampa 102,285 SF3. West 94,374 SF4. Southeast 68,894 SF5. South Meridian 54,408 SF
Net Absorption 534,788 SF
1. Nampa 5,701,692 SF2. Airport 5,025,496 SF3. West 3,948,029 SF4. Meridian 3,904,985 SF5. North 3,077,823 SF
Total Inventory 32,301,748 SF
1. Caldwell 302,156 SF2. Nampa 312,382 SF3. Meridian 290,073 SF4. Airport 267,275 SF5. West 207,688 SF
Gross Absorption 1,974,941SF
1. Caldwell 180,910 SF2. Meridian 147,395 SF3. West 96,439 SF4. Southwest 72,828 SF5. Airport 71,081 SF
Net Absorption 536,828 SF
1. West 4,712,848 SF2. Nampa 4,148,575 SF3. Meridian 3,193,354 SF4. Southeast 1,280,800 SF5. North 1,222,892 SF
Total Inventory 19,675,632 SF
1. Meridian 542,669 SF2. West 237,470 SF3. North 131,688 SF4. Nampa 130,938 SF5. Downtown 101,901 SF
Gross Absorption 1,393,983 SF
1. Meridian 419,613 SF2. North 98,649 SF3. Downtown 63,821 SF4. Central 61,662 SF5. West 57,476 SF
Net Absorption 779,340 SF
VACANCY ABSORPTION SUPPLY
OFFICE 8.5% +68,900 21.3 mo
INDUSTRIAL 5.5% +36,000 25.7 mo
RETAIL 16.6% -6,100 89.0 mo
SOUTHEAST
VACANCY ABSORPTION SUPPLY
OFFICE 6.4% +43,200 19.3 mo
INDUSTRIAL 5.4% +15,100 11.5 mo
RETAIL 9.8% +63,800 9.7 mo
DOWNTOWN
VACANCY ABSORPTION SUPPLY
OFFICE 12.0% -2,100 26.3 mo
INDUSTRIAL 4.5% +71,100 14.4 mo
RETAIL 20.3% +14,100 60.3 mo
AIRPORT
VACANCY ABSORPTION SUPPLY
OFFICE 16.6% +19,000 32.8 mo
INDUSTRIAL 10.7% -45,400 33.3 mo
RETAIL 8.9% +61,700 20.2 mo
CENTRAL
VACANCY ABSORPTION SUPPLY
OFFICE 17.3% +94,400 35.6 mo
INDUSTRIAL 12.3% +96,400 23.4 mo
RETAIL 4.6% +57,500 11.7 mo
WEST
VACANCY ABSORPTION SUPPLY
OFFICE 15.3% +22,200 31.2 mo
INDUSTRIAL 6.4% +13,400 11.3 mo
RETAIL 12.6% +98,600 18.7 mo
NORTH
Net absorption was at its highest level since 2007 and increased for the third consecutive year. Total vacancy steadily declined for the past two years to its current level of 12.3 percent. Multitenant vacancy experienced an even greater decline, from over 21 percent to 17.4 percent.
Meridian continues to be the healthiest submarket, with only 12 months of projected supply, compared to a market-wide average of 25 months. West Boise is improving, but still has an abundance of Class B space available.
Despite a banner year overall, absorption declined each quarter through 2012, making 2013 diffi cult to predict. The number of transactions were up from 2011, but the average space size decreased. Large space has become scarce, with half as many spaces over 20,000 square feet available compared to two years ago. There is limited turnkey call center space available now and these spaces accounted for some of the largest deals in recent years.
Overall lease rates are up 5 percent over 2011, while Class A rents remained fl at in 2012. Class A rates are likely to see an increase following construction at The Village in Meridian and Eighth & Main in downtown Boise. As inventory decreases, lease rates will rise, especially for large spaces.
There has been a shift from a heavily tenant-favored market to a more balanced market. Less free rent and lower tenant improvement allowances are being off ered today. Lease terms have returned to the typical 3- to 5-year range instead of the short-term leases seen in recent years. Escalating rents are also commonplace again.
Medical activity has shifted as leases and build-to-suits for small medical offi ces have declined, but large medical transactions have increased. Hospitals are acquiring buildings and land for future development. They also master-leased large offi ce buildings to accomodate more physicians.
Construction increased in 2012, but just slightly. Most can be attributed to medical activity, such as the Ventana Business Park in Nampa. All construction in 2012 was owner-occupied or was pre-leased.
Al Marino, SIOR
208.947.0811
Patrick Shalz, SIOR
208.947.0834
Grove Hummert
208.947.0804
Average Offi ce Lease Rates
Offi ce Net Absorption — Overall Market
Boise MSA Unemployment
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
5.0%
6.0%
3.5%
5.1%
9.6%
2.9%
4.9%
Offi ce Transactions by Asking Rate
6.4%
$21.00
$20.00
$19.00
$18.00
$17.00
$16.00
$15.00
$14.00
$13.00
$12.00
Class A Asking Rates
Class A Actual Rates
Overall Asking Rates
Overall Actual Rates
$12.40
$14.05
$15.65
$19.00
$18.75
$15.50
$14.90
$19.55
$15.90
$20.00
$19.00
$15.50
$13.40
$16.75
2006 2007 2008 2009 2010 2011 2012
*Annual Full Service lease rates
Sq
ua
re F
ee
t 417,000
311,000
925,000
468,000
617,000
327,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
-400,000
-600,000
-413,000
-22,000
$17.25
$14.10
$13.25
465,000
60
50
40
30
20
10
0
5960
*Based on last 12 months, Class A & B Buildings
Nu
mb
er
of
Tra
nsa
cti
on
s
$0 – $10.00
42
52
48
20
16
$10.01 –
$12.00
$12.01 –
$14.00
$14.01 –
$16.00
$16.01 –
$18.00
$18.01 –
$20.00
$20.01 +
OFFICE WATCH
$17.00
$16.00
$14.50
$13.80
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
535,000
Annual Full Service lease rates
$15.80
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
7.7%
Thru Nov.
National Unemployment Rate
Boise MSA Unemployment Rate
The next six months will see the Offi ce market continue to tighten, especially for larger spaces. This will leave some tenants in a holding pattern for much of 2013 until new construction is delivered. Speculative construction will pick up with The Village at Meridian (located at Eagle & Fairview) delivering 150,000 square feet of offi ce space in fall 2013, and the Eighth & Main building in downtown Boise, slated for completion in 2014. Other developers may also bring spec buildings out of the ground due to the lack of inventory available for larger tenants.
This new construction will spur leasing activity but vacancy will likely remain around 12 percent. Absorption will be positive in 2013, though not at the level seen in the past 12 months. Lease rates will continue to rise, as much as 10 to 15 percent in desirable locations. The market is beginning to shift in favor of landlords due to a limited inventory of Class A offi ce space.
Unemployment has declined, but the total number of employees is still fewer than in 2008. Interest from outside Boise is growing; however, one major challenge is accessibility to our market. Boise’s selling point remains its enviable high quality of life, but some competing markets such as Salt Lake City and Denver off er a similar pitch with stronger demographics and better access.
OUTLOOK
Offi ce Historical Vacancy22.0%
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
Va
ca
nc
y R
ate
Greg Gaddis
208.947.0827
Lease RatesLease Rates
Vacancy RatesVacancy Rates
AbsorptionAbsorption
ConstructionConstruction
Change from last: Year Quarter
Offi ce Summary
Offi ce Net Absorption — Submarkets
120,000
100,000
80,000
60,000
40,000
20,000
0
-20,000
Sq
ua
re F
ee
t
Market Activity
• St. Luke’s and Saltzer Medical Group occupied a 118,000 SF medical building at Ventana Business Park in Nampa.
• Baseline Irrigation Solutions leased 15,800 SF at Emerald Tech Center D in Boise.
• Sorenson Communications (25,600 SF), FLSmidth (20,300 SF) and Aptina Imaging (23,900 SF) leased space at Silverstone Plaza in Meridian.
• Central Garden & Pet leased a 34,000 SF building at 9390 Golden Trout, located off of Emerald Street in Boise. Central Garden & Pet is a call center new to Boise.
• Scentsy purchased a 26,000 SF building at Pinebridge Business Park, located off of Eagle Road in Meridian.
• Berkley North Pacifi c Group leased an 18,400 SF building on Watertower Lane in Meridian.
15.57%
14.13%
15.74%
13.81%
18.59%
11.87%
21.35%
16.07%
12.32%
19.06%
Multitenant Vacancy: excludes owner-user
Total Vacancy: subleases not included
Mike Greene, CCIM
208.947.0835
Mark Cleverley
208.947.5507
Offi ce 4
17.40%
Caldwell6,300
Nampa102,300
Eagle15,200
Meridian111,200
SouthMeridian
54,400
Southwest-300
West94,400
Central19,000
North22,200
Downtown43,200
Airport-2,100
Southeast68,900
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
20.11%
Falcon Building36,000 SF sold
Silverstone Plaza
69,800 SF leased
Ventana Business Pk118,000 SF occupied
9390 Golden Trout34,000 SF leased
Pinebridge26,000 SF sold
Transaction activity picked up throughout 2012, resulting in the most net absorption since 2006. Owner-user sales increased, driven by companies with a renewed confi dence in both the economy and their own business plans. There is an increased sense of urgency as bottom-of-the-market deals, such as bank-owned sales, are rapidly disappearing. An improved fi nancing market also boosted sales activity as banks are competing for loans to qualifi ed buyers.
Total vacancy returned to single digits, while multitenant vacancy declined to 17 percent, the lowest it has been since 2008. Vacancy rates vary based on quality with Class A buildings (concrete tilt-up) outperforming the market. There is an abundance of Class B and C space available which remains diffi cult to lease. Vacancy has returned to pre-recession levels, but rents remain an average of 20 percent lower compared to 2008.
The diff erence between asking and actual rents has closed to its smallest gap since 2008. Landlord and tenant expectations are more aligned than in previous years, helping spur leasing activity. Some landlords have started to increase rents in buildings where few vacancies remain.
Boise is seeing renewed interest from out-of-state companies. Over 20 percent of 2012 leases were with companies new to the area. Local start-ups have also seen a spike in activity, increasing from 12 percent of transactions in 2011 to 19 percent in 2012. Incubator industrial parks were active as businesses moved from home-based operations into commercial space.
Nampa had the most negative absorption as a result of 254,000 square feet being vacated by Transform Solar. Caldwell saw signifi cant activity with Treasure Valley Seed leasing a 100,200 square foot facility and Southwark Metal completing construction on a 79,500 square foot building.
Construction increased in 2012, mostly due to owner-occupied buildings. Speculative construction remains limited to high-quality projects built by developers who purchased the land several years ago.
Jerry Van Engen
208.947.0840
Chris Pearson, SIOR
208.947.0859
Dan Minnaert, SIOR, CCIM
208.947.0845
-158,000
-56,000
494,000
1,159,000
302,000
-43,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
-400,000
-67,000
$0.50
$0.48
$0.46
$0.44
$0.42
$0.40
$0.38
$0.36
$0.34
Overall Asking Rates
Overall Actual Rates
$0.38
$0.43
$0.48
$0.46 $0.47
$0.45
$0.48
$0.44
$0.46
$0.36
*Monthly Triple Net warehouse lease rates
17,000
Average Industrial Lease Rates
Industrial Net Absorption — Overall Market
Industrial Transactions by Asking Rate
Industrial Transactions by Square Feet
Sq
ua
re F
ee
t
$0.35
$0.41
2006 2007 2008 2009 2010 2011 2012
375,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
90
80
70
60
50
40
30
20
10
0
80
35
*Based on last 12 months
Nu
mb
er
of
Tra
nsa
cti
on
s
0 – 1,000 SF
46 47
28
20
27 26
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
15,000+ SF
INDUSTRIAL WATCH
$0.36
$0.40
537,000
50
40
30
20
10
0
8
3
*Based on last 12 months
Nu
mb
er
of
Tra
nsa
cti
on
s
$0 – $0.25
17
47
30
2123
$0.26 – $0.30 $0.31 - $0.35 $0.36 – $0.40 $0.41 – $0.45 $0.46 – $0.50 $0.51 +
Absorption is expected to be positive for a fourth consecutive year in 2013, though it will probably not be as high as in 2012. Vacancy will continue to improve despite a slight bump at the end of 2012 due to Transform Solar vacating 254,000 square feet in Nampa. The disparity in Class A versus Class B and C vacancy will continue as quality space is in greater demand.
With the residential market in full recovery, tenants tied to this industry are likely to expand into larger spaces as the need arises. Many of the new tenants in incubator spaces will look for opportunities to grow when their leases come up for renewal.
Properties with good access, regardless of municipality, will continue to generate greater interest as most tenants require easy access to the interstate. As inventory tightens and projected supply decreases, lease rates will rise but will still be lower than pre-recession levels. Speculative construction will remain limited until lease rates return to a level that supports new construction. However, some well-capitalized developers that purchased land years ago may begin construction if inventory continues to tighten.
Devin Pierce
208.947.0850
Gavin Phillips
208.947.0812
6.80%
14.63%
21.53%
11.23%
12.38%
11.22%
23.64%
20.49%
10.51%
18.90%
9.65%
17.15%
Industrial 6
Industrial Historical Vacancy
Lease RatesLease Rates
Vacancy RatesVacancy Rates
AbsorptionAbsorption
ConstructionConstruction
Change from last: Year Quarter
Industrial Summary
Industrial Net Absorption — Submarkets
Market Activity
• Bon-Aire Industries occupied a 40,000 SF building on Eisenman Road in Boise.
• GTS Drywall leased a 49,400 SF building on Enterprise Street in Boise. They vacated a smaller space off of Broadway Avenue.
• Dixon Container occupied a 51,600 SF building on Amity Road in Boise.
• Treasure Valley Seed leased 100,200 SF in the former Kit Manufacturing building in Caldwell.
• Southwark Metal Manufacturing built and occupied a 79,500 SF building in Caldwell. This is the fi rst location west of the Mississippi for Southwark.
• Primary Weapons Systems leased 61,100 SF in the former HP 17 building on Executive Drive in West Boise.
Scott Raeber, CCIM, MBA
208.947.0802
OUTLOOK
Caldwell180,900
Nampa-50,800
Eagle-100
Meridian147,400
SouthMeridian
0
Southwest72,800
West96,400
Central-45,400
North13,400
Downtown15,100
Airport71,100
Southeast36,000
200,000
150,000
100,000
50,000
0
-50,000
-100,000
Sq
ua
re F
ee
t
25.0%
20.0%
15.0%
10.0%
5.0%
Va
ca
nc
y R
ate
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Multitenant Vacancy: excludes owner-userTotal Vacancy: subleases not included
Caldwell Manufacturing100,200 SF leased
Southwark Metal79,500 SF occupied
255 Steelhead61,100 SF leased
MPC Facility254,300 SF vacated
5475 Gage29,800 SF vacated
Transaction activity increased signifi cantly in 2012 due to pent-up demand from 2008 to 2011. Many retailers that put expansion plans on hold through the recession decided to move ahead in 2012. The result was a banner year with a 35 percent increase in gross absorption. Vacancy decreased to 8.7 percent and there was nearly 800,000 square feet of net absorption, the most since 2007. Construction was at its highest level since 2008 and 85 percent of activity was due to large retailers opening new stores.
Most new construction occurred along Eagle Road. Big Al’s, Gordmans, and Marshalls opened at The Village at Meridian. Grocers also expanded in 2012, with Fred Meyer opening at Chinden & Linder, Rosauers on Eagle Road, and Whole Foods in downtown Boise. Construction is underway on Walmart’s fi rst Neighborhood Market at Cole & Ustick. Pad sales are up signifi cantly, especially for fast food restaurants and banks.
There are distinctly diff erent market conditions depending on shopping center quality and location. Areas such as the Eagle Road corridor, the Towne Square Mall, and centers near Boise State have fully recovered, returning to stable occupancy and pre-recession rents. Downtown has seen a spike in food and beverage activity, with 10 Barrel Brewing and Ruth’s Chris Steak House opening soon. Other pockets of the market are still recovering. Centers with poor design or location remain challenged as retailers typically opt to pay higher rents for proven locations.
Asking rates remained fl at in 2012, but actual rents increased slightly. New centers on Eagle Road are seeing rents as high as $35 per square foot, nearly triple the market average. Renewal lease rates are remaining fl at or bumping up slightly, a change from previous years when rents were being driven down by a lack of demand.
Across the board, national retailers are more sophisticated in this post-recession economy. Expansion is more deliberate and conservative. Many of the new retailers have opened only one store, but plan to open more depending on sales performance.
Mark Schlag, CCIM, CLS
208.947.0817
Bob Mitchell, CSM
208.947.0836
Ben Zamzow, CCIM, SCLS
208.947.5514
20.0%
15.0%
10.0%
5.0%
0.0%
7.23%
5.08%
11.92%
17.38%
50
40
30
20
10
0
$20.00
$19.00
$18.00
$17.00
$16.00
$15.00
$14.00
$13.00
$12.00
$11.00
$10.00
Class A Asking RatesClass A Actual RatesOverall Asking RatesOverall Actual Rates
$13.95
$12.75
$19.00
$17.65
$16.40
$15.55
$19.25
$18.25
$17.50
$16.40$16.00
$12.50
75,000
289,000
391,000
827,000
1,034,000
372,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
-400,000
-362,000
*Annual Triple Net lease rates
35,000
Average Retail Lease Rates
Retail Net Absorption — Overall Market
Shopping Center Vacancy Summary
Retail Transactions by Asking Rate
Sq
ua
re F
ee
tS
qu
are
Fe
et
$14.00
$13.00
$12.00
$11.10
2006 2007 2008 2009 2010 2011 2012
20
457,000
47
40
31
RETAIL WATCH
$14.00
$13.35
$12.00
$11.50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
779,000
Nu
mb
er
of
Tra
ns
ac
tio
ns
$15.40
$12.10
$18.00
$14.50
Power Center/Mall Community Center Neighborhood Center Strip Center
64
9
$0 – $10 $10.01 - $12 $12.01 - $14 $14.01- $16 $16.01 - $18 $18.01 - $20 $20+
OUTLOOK
Retail 8
Absorption will be positive in 2013 with new projects including the Walmart Supercenter near Overland & Meridian (165,000 square feet) and continued construction at The Village at Meridian on Eagle Road. Some unanchored centers are also planned, but are looking for tenant commitments before starting construction.
Vacancy should continue to decline and asking rates are likely to push up slightly in 2013, particularly for Class A space. Older, poorly designed centers which have been vacant for years are likely to remain empty until more inventory is absorbed. As vacancy declines, asking rates will increase, but they will not return to 2008 levels until consumer spending and optimism fully rebound.
With a steadily improving leasing market and no anticipated store closures on the horizon, 2013 will continue to rebound. Many retailers who had been waiting to enter the Boise market, such as Nordstrom Rack and Dave & Buster’s, signed leases in 2012. However, interest still remains high from other national tenants looking at the Boise market. An entire city block in the heart of downtown Boise is the target of one such national chain looking to open their fi rst store in Idaho.
250,000
200,000
150,000
100,000
50,000
0
-50,000
• Rosauers opened a 63,000 SF grocery store at Gateway Marketplace located at Eagle & Ustick in Meridian. This is their fi rst store in Idaho.
• Fred Meyer opened a 177,800 SF store at Eagle Island Marketplace located at Chinden & Linder in Meridian.
• Walmart leased 44,200 SF at Cole & Ustick in Boise. The store will be the fi rst in our market operating under Walmart’s smaller Neighborhood Market concept.
• Sportsman’s Warehouse leased a 48,000 SF building at Treasure Valley Crossing in Nampa.
• D&B Supply leased 40,200 SF at Overland Park Center.
• Gordmans, Big Al’s Entertainment, Marshalls, Petco, Gap Outlet and Nike leased a combined 172,800 SF in The Village at Meridian located at Eagle & Fairview.
Retail Historical Vacancy
Lease RatesLease Rates
Vacancy RatesVacancy Rates
AbsorptionAbsorption
ConstructionConstruction
Change from last: Year Quarter
Retail Summary
Retail Net Absorption — Submarkets
Market Activity
Sq
ua
re F
ee
t
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
Va
ca
nc
y R
ate 19.38%
9.80%
17.38%
Brianna Hansen
208.947.5519
2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Unanchored Vacancy: excludes anchored centersTotal Vacancy: anchored and unanchored centers
8.66%
21.30%
12.50%
20.38%
9.70%
12.12%
14.30%
24.13%
25.30%
Caldwell900
Nampa34,800
Eagle23,800
Meridian419,600
SouthMeridian
-1,800
Southwest12,500
West57,500
Central61,700
North98,600
Downtown63,800
Airport14,100
Southeast-6,100
Eagle Island Marketplace177,800 SF Fred Meyer opened
The Village at Meridian141,200 SF leased to Big Al’s,
Gordmans & Marshalls
Gateway Marketplace63,000 SF Rosauers opened
Treasure Valley Crossing48,000 SF leased to
Sportsman’s Warehouse
Whole Foods35,000 SF occupied
Transaction volume has increased year over year since 2009 as the Investment sector reaps the benefi ts of an improved leasing market. However, sales volume is still far below the 2003–2008 average and rents remain low, which continues to hold pricing down.
Despite an improving market, there is a growing disconnect between buyers and sellers. Buyers seek bottom-of-the-market deals but these no longer exist. They are also looking for stabilized investment-grade properties, but inventory is limited. Some sellers are overestimating the value of their assets, believing they can get signifi cantly more for their properties due to improving vacancy rates. Both the buyer and seller must be motivated and realistic in order to complete a transaction today.
Capitalization rates still vary by product type. Most pricing has cap rates in the 8 to 9 percent range. Well-positioned properties with strong fundamentals can still fetch 7 percent, while less stable investments will sell with a 10+ cap rate.
Investors were cautious in 2012, fi rst because of the election and then due to the fi scal cliff . Investors are looking closely at tenant fi nancials in the due diligence process, and as we move further away from the recession, balance sheets are getting stronger. Buyers are also evaluating sale prices relative to replacement cost as a hedge against potential vacancy.
Transaction activity was strong in the 4th Quarter as many sellers wanted to close before the end of the year to avoid a signifi cant increase in capital gains taxes. While the full impact of a rise in capital gains taxes is diffi cult to project, the silver lining would be an increase in 1031 exchanges as sellers will quickly become buyers in order to limit taxation.
Financing has improved, but there is not much variety available and an adequate down payment is required. Potential sellers who are facing heavy prepayment penalties are holding back on listing their properties. Some owners will sell at a discounted price to cash buyers to avoid fi nancing. Low interest rates should continue through 2013, creating no sense of urgency for buyers.
John Stevens, CCIM
208.947.0814
Mike Keller, SIOR, CCIM
208.947.0844
Jim Boyd
208.947.5522
Investment Sales Volume
Investment Sales by Property Type
Multifamily OccupancyInvestment Sales Comparables
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
$153M $158M
$227M $220M
$410M
$227M
$61M$71M
Based on disclosed transactions in the Boise MSA
$ i
n M
illi
on
s
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Offi ce40%
Retail29%
Industrial16%
Apartments14%
Storage 1%
95.8%
94.4%
90.5%
94.3%
90.6%
100%
98%
96%
94%
92%
90%
Pe
rce
nta
ge
2006 2007 2008 2009 2010 2011 2012
Provided by Ada Real Estate Surveys
Based on disclosed
transactions in the Boise MSA
Approximate values of actual transactions in the Boise MSA
Size Sale Price Cap Rate
Offi ce 13,000 SF $4,300,000 7.20%
Industrial 17,000 SF $2,400,000 8.80%
Retail 9,000 SF $790,000 8.00%
Apartments 50 units $4,800,000 6.50%
Storage 325 units $950,000 8.00%
Through Oct.
*Ada County Only
INVESTMENT WATCH
$105M$99M
95.5%
96.4%
Investment 10
OUTLOOK
There will be continued pressure both locally and nationally for capitalization rates to come down on quality investments due to the lack of product available and historically low interest rates. Even with this pressure, cap rates will remain in the 7 to 9 percent range in 2013. Boise will continue to lag behind the national trends which stabilized at 7 percent cap rates over a year ago.
Bank-owned sales will still occur but will not be nearly as prevalent as in recent years. Portfolio and note sales will taper off since banks have moved through much of the REO properties in their inventory. With fewer distressed properties available, sales prices will push upwards in the coming years, though the days of pre-recession prices are long gone.
The risk of infl ation remains top of mind for many investors. Should the threat of infl ation become a looming reality, investors will look to commercial real estate as a stable, albeit non-liquid, asset in which to invest their capital. The threat of increasing interest rates may be on hold through 2013, but most would agree that rates will increase—it is only a question of when.
• Transaction volume is up for the third consecutive year and is on pace for its highest level since 2008.
• Rents are stabilizing in all three sectors of the commercial market. However they remain near 10-year lows.
• There is strong demand for investment-grade properties, but inventory remains low. Bottom-of-the-market deals have passed.
• Local capitalization rates, with the exception of industrial, declined in 2012. Retail and multifamily cap rates have returned to 2008 levels.
• Transaction activity was strong in the 4th Quarter with many deals closing before an increase in capital gains could go into eff ect.
• Some owners will sell at a discounted price to cash buyers in order to avoid fi nancing.
National Capitalization Rates
Transaction VolumeTransaction Volume
Boise Cap RatesBoise Cap Rates
National Cap RatesNational Cap Rates
Interest RatesInterest Rates
Change from last: Year Quarter
Investment Summary
Boise Capitalization Rates
Market Trends
9.0%
8.9%
6.9%
8.2%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
9.0%
8.0%
7.0%
6.0%
5.0%
8.8%
7.9%
8.5%
7.1%
6.7%
Offi ce
Industrial
Retail
Multifamily
8.3%
Peter Oliver, SIOR, CCIM
208.947.0816
7.4%
8.7%
5.7%
2 0 1 0 2 0 1 1 2 0 1 2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
8.0%
Offi ce
Industrial
Retail
Multifamily
Michael Ballantyne, CCIM
208.947.0831
12,000
10,000
8,000
6,000
4,000
2,000
0
400
300
200
100
0
Single-Family Home Permits
Commercial—New Construction Permits
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Construction Monitor
COMMERCIAL LAND
Despite improving vacancy rates throughout the market, rents have not increased enough to drive land sales in 2012. Most land sales are to end-users or developers that can aff ord to hold the property. Commercial lease rates are still too low to justify most speculative construction.
There was a push by sellers to close on transactions by the end of the year due to the looming fi scal cliff . Some transactions that faced delays are off the table and will not occur in 2013. Increasing capital gains taxes for some, coupled with an additional 3.8 percent tax from the Aff ordable Care Act, could factor into buying and selling decisions going forward.
Amid new economic concerns, investors are looking for long-term solutions to infl ation. Land remains an excellent option, but lacks liquidity, suitable for buyers who are prepared to hold the property for years, not months.
RESIDENTIAL LAND
A rebounding housing market and reasonable land prices have helped drive sales for speculative development. Improved lots have all been sold with large developers absorbing most inventory, leaving smaller builders with few options. Most activity has occurred in Ada County. Outlying markets vary with Star seeing strong activity with fi nished lot sales, while Kuna and Middleton continue to lag behind.
Multifamily land sales have returned to pre-recession levels. Most of the construction is occurring on ground that was purchased during the recession. Multifamily developers are still having a diffi cult time getting development to pencil since rents must be low enough to compete with low mortgage payments for entry-level houses.
The multifamily sector may end up being overbuilt based on the number of permits pulled recently and projects already in the pipeline. Developers arriving late to the market will fi nd higher land prices and pressure on rents.
70
60
50
40
30
20
10
0
Commercial Land Sales by Planned Use
Ada & Canyon Counties
Ada & Canyon Counties
Ac
res
$14
$12
$10
$8
$6
$4
$2
$0
$ i
n M
illi
on
s
35.4 acres
67.7 acres
42.8 acres
$4.3M$3.8M
$8.7M
Offi ce Industrial Retail
Based on disclosed transactions in the Boise MSA
Source: Construction Monitor, Single Family Only
Lenny Nelson
208.947.0806
70%
60%
50%
40%
30%
20%
10%
0%
Bank-Owned Activity
2008 2009 2010 2011
Ada & Canyon Counties Percentage of bank-owned land sales
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1%
7%
24%
43%
39%
50%
20%
48%
Commercial Land
Residential Land
LAND WATCH
127
2,717
2012
26%
38%
247
269
382
344
376
200
83 8266
6,392
7,500
10,528
6,999
3,437
2,216
1,693 1,533 1,465
Land 12
OUTLOOK
While market fundamentals, such as occupancy and absorption, continued to improve in 2012, lease rates are still well below pre-recession levels, further stalling bare land sales for commercial development. The exception is land purchased by well-capitalized, patient developers with the ability to delay development until lease rates recover. Finished pads and land sales to end users will remain the driving force for the commercial land market in 2013.
Pads along major corridors, like Eagle Road, will continue to have high demand as inventory shrinks. The Garrity interchange near the Saint Alphonsus Medical Center will see more development as the hospital continues its expansion. The area around the Ten Mile Interchange may also begin to see movement in 2013 as talks of a mixed-use development have begun among land owners.
With the majority of fi nished residential lots already in the hands of developers, bare land may become the only opportunity for further residential development. However, the risk of increased mortgage rates looms over the residential market. While the Fed has pushed increasing rates out until 2014, any increase could seriously hamper recovery eff orts. Multifamily land sales are likely to slow as developers wait to see how well the new inventory is absorbed.
Land Sales Activity
KUNA
MIDDLETON
STAR
Boise River
Boise River
Lake Lowell
Vist
a
2nd St.
Nor
thsi
de B
lvd.
Mid
dlet
on R
d.
Hap
py V
alle
y R
d.C
an -A
da R
.
Amity Rd.
11th
Ave.
10th
Ave.
Pow
erlin
e R
d.
Garrity
Cherry Lane
Milw
auke
e
Sou
thsi
de B
lvd.
Deer Flat Rd.
Kuna Rd.
King Rd.
McD
erm
ott R
d.Greenhurst
Fran
klin
Rd.
Fairview Ave.
Overland Rd.
McMillan Rd.
Emerald
Clo
verd
ale
Map
le G
rove
Cur
tis
Ustick Rd.
Nampa - Caldwell Blvd.
Mid
land
Blv
d.
12th
Ave
.
Ustick Rd.
Franklin Rd.
Chinden
Ten
Mile
Mer
idia
n
Eagl
e
Five
Mile
Col
e
Gowen
Orc
hard
Bro
adw
ay
Locust
44
20 26
55
19
CALDWELL
WEST BOISE
SOUTHWEST BOISE
AIRPORT
CENTRAL BOISE
SOUTHEAST BOISE
NORTH BOISE
DOWNTOWN BOISE
EAGLE
NORTH MERIDIAN
SOUTH MERIDIAN
IDAHO CENTER
CALDWELL BLVD
SOUTH NAMPA
Residential
20+ acres
$6k per Acre
Retail
5 acres
$2 per SF
Industrial
1–2 acres
$1 per SF
Multifamily
0.5–2 acres
$2–$5 per SF
Industrial
9 acres
$0.50–$1per SF
Offi ce
1–2 acres
$4–$5 per Acre
Retail Pads
<0.5 acre
$13–$15 per SF
Offi ce
<0.5 acres
$8–$9 per SF
Industrial
2 acres
$0.75 per SF
Residential
20+ acres
$17k–$34k per Acre
Retail
4–5 acres
$7 per SF Industrial
1–2 acres
$2–$3 per SF
Retail
0.5 acres
$7–$8 per SF
Multifamily
<0.5 acres
$3 per SF
Offi ce
0.5 acre
$2–$3 per SF
Industrial
1–20 acres
$1–$2 per SF
Offi ce
2 acres
$2 per SF
Retail Pads
0.5–1 acres
$11–$17 per SF
Retail
0.5–1 acre
$4 per SF
Multifamily
2 acres
$18 per SF
Residential
20+ acres
$13k–$26k per Acre
Retail
<0.5 acres
$6 per SF
Industrial
15+ acres
$1 per SF
Industrial
10 acres
$0.50–$1 per SF
Multifamily
0.5–8 acres
$2–$3 per SF
Industrial
2 acres
$2–$3 per SF
Offi ce Lot
<0.5 acres
$11 per SF
Mixed Use
20+ acres
$1 per SF
Mixed Use
3 acres
$3 per SF
Retail Pads
0.5–1 acres
$13 per SFRetail Pads
0.5–2 acres
$6–$16 per SF
Offi ce
1–3 acres
$4–$6 per SF
Retail Pads
0.5 acres
$17 per SF
OFFICE: The Canyon County offi ce market is improving, but at a slower pace than Ada County. Although vacancy decreased from 14.4 percent to 13.4 percent in 2012, rents also continue to decline. Multitenant vacancy still hovers above 22 percent, far above Ada County at 17 percent.
Absorption was positive in 2012, but this is mostly attributed to the Ventana medical building near the Karcher interchange. This 118,000 square foot building was occupied by St. Luke’s and Saltzer Medical Group and was the largest offi ce construction project completed in the Boise MSA in 2012.
INDUSTRIAL: Industrial activity was a mixed bag in Canyon County, with both signifi cant transactions and sizable vacancies. In Caldwell, Treasure Valley Seed leased a 100,200 square foot facility that had been vacant for years, but this was off set by Transform Solar vacating 254,000 square feet in Nampa. Vacancy remained above 17 percent, while Ada County vacancy is just above 7 percent.
Caldwell was one of the most improved submarkets in the entire Boise MSA, while the Caldwell Boulevard submarket in Nampa was one of the weakest, with over six years of projected supply on the market. Rents continue to decline, with many transactions occurring in the low $0.30 per square foot range (NNN lease rates).
RETAIL: Retail absorption was positive in 2012 and was concentrated at the Karcher interchange where Sportsman’s Warehouse reopened in 48,000 square feet at Treasure Valley Crossing. Caldwell still has over four years of projected supply available and retail centers at the Garrity interchange continue to face challenges in fi lling vacancies. Pad sales have increased with Discount Tire opening a new store at both the Garrity and Karcher interchanges and Carl’s Jr. opening a new restaurant on 12th Avenue.
Although the improvements in vacancy and absorption were minimal, retail remains a bright spot for Canyon County. Retail is the only sector where Canyon County vacancy is lower than Ada County.
Offi ce34%
Retail5%
Canyon County Map
Sales Volume by Property Type
Storage14%
Industrial32%
Average Canyon County Lease Rates
Caldwell Blvd.
Idaho Center
SouthNampa
Caldwell
Offi ce (Annual Full Service)
Asking $13.00 $16.30 $12.00 $12.90
Actual $10.40 $15.85 $11.60 $12.25
Industrial (Monthly NNN)
Asking $0.38 $0.34 $0.33 $0.39
Actual $0.38 $0.33 $0.30 $0.26
Retail (Annual NNN)
Asking $10.95 $16.00 $10.00 $11.00
Actual $9.70 $15.70 $9.50 $11.00
Apartments15%
CANYON COUNTY WATCH
Canyon County 14
OUTLOOK
Canyon County’s Offi ce market will be headlined by medical activity in 2013. Saint Alphonsus will continue to expand their presence in Nampa at the Garrity interchange, while a 60,000 square foot, three-story medical offi ce building is planned for construction near West Valley Medical Center in Caldwell. There is still a lack of quality multitenant offi ce product available in Canyon County due to lack of demand.
Retail activity should continue to be healthy and there are a number of planned projects on the horizon, waiting for the Canyon County market to fully recover. While a timeframe has yet to be announced, Walmart plans to open a Neighborhood Market at Roosevelt & Middleton in Nampa. A similar Walmart Neighborhood Market will open at Cole Village Shopping Center in Boise in 2013. Pad sale activity should also continue to be strong, with some pads already under contract near the Garrity interchange and along Caldwell Boulevard.
Over 30 percent of the Boise MSA’s industrial activity occurred in Canyon County in 2012 and Nampa and Caldwell will likely maintain a strong presence in the area’s Industrial market. Although vacancy is at a historically high level, much of it is attributed to a few large vacancies. These large spaces (20,000+ square feet) also present opportunities for Canyon County, especially as interest increases from out-of-state companies looking for space that is ready for move-in.
• St. Luke’s and Saltzer Medical Group occupied a 118,000 SF medical building at Ventana Business Park in Nampa.
• REYCO purchased a 31,000 SF building on Industrial Way in Caldwell. They vacated a smaller building in Meridian.
• Cascadia Metals leased a 28,000 SF building in Nampa. The company is new to the Boise MSA.
• Sportsman’s Warehouse leased a 48,000 SF building at Treasure Valley Crossing in Nampa.
• Treasure Valley Seed leased 100,200 SF in the former Kit Manufacturing building in Caldwell.
• DuPont Pioneer leased 23,100 SF on Star Road in Nampa.
• Southwark Metal Manufacturing occupied a new 79,500 SF building in Caldwell.
Canyon County Net Absorption
Offi ce VacancyOffi ce Vacancy
Industrial VacancyIndustrial Vacancy
Retail VacancyRetail Vacancy
Overall VacancyOverall Vacancy
Change from last: Year Quarter
Vacancy Summary
Canyon County Vacancy
Market Activity
Caldwell Blvd Idaho Center South Nampa
Offi ce
Industrial
Retail
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Caldwell Blvd Idaho Center South Nampa
Offi ce
Industrial
Retail
200,000
150,000
100,000
50,000
0
-50,000
-100,000
-150,000
Sq
ua
re F
ee
t
-249,600
Caldwell
Caldwell
Pe
rce
nta
ge
14.04%
28.33%
15.89%
2.23%
19.32%
5.86%
12.61%
6.41%6.41%
12.64%
10.82%
7.49%
110,800
29,100
-1,900
137,900
- 4,200 -6,500
60,800
9,900 6,300
180,900
900
By John Mitchell
In the fourth year of a disappointing upturn, the onset of a new year would normally be a time of anticipation—that the new year might bring faster employment and income growth. At the close of 2012, the hope for better performance was overshadowed by the specter of a dysfunctional political system, imposing a tightening of fi scal policy on a weak economy. Uncertainty was ubiquitous: for investors, for payroll departments, at the IRS, and in accounting offi ces. It was a self-imposed, homegrown situation tailor-made to weaken the economy, accompanied by recessions in Europe and Japan. The fi scal cliff dominated the news as the year wound down. Any resolution was likely to take a toll on 2013 performance. The question was, how much? When the books are closed on 2012, overall growth in output and employment will be similar to 2011, with lower infl ation and lower interest rates. Wage and salary employment will be about 4 million jobs below early 2008 levels.
The real GDP increased at a 3.1 percent annual in the 3rd Quarter, well above the 2.1 percent and 1.3 percent of the fi rst two quarters. The detail of the quarter was less thrilling with 1.35 percentage points of growth from defense spending and inventory accumulation—not likely to be repeated. Increases in the Consumer Price Index moderated as gasoline prices plunged and underlying labor cost pressures remained muted in much of the economy. Net increases in non-agricultural wage and salary employment through November averaged 151,000 jobs per month, about the same as 2011. The long nightmare in the residential sector was over as new construction, resales, and prices all climbed. As of the 3rd Quarter housing had been contributing to growth for fi ve consecutive quarters. Time, plunging prices, mortgage rates with two and three handles and rising employment and household formation worked their magic on the shrunken sector.
Fiscal policy, in the wake of the last-minute deal, will tighten with higher taxes on families with incomes over $450,000, for all working persons with the expiration of the payroll tax holiday, and miscellaneous other increases. It will be a growth dampener. The debt ceiling, spending restraint, and entitlement issues have been kicked down the road—more confrontations to come. QE4 is underway on the monetary policy front. The Fed will be buying $85 billion worth of securities each month: $40 billion in mortgage-backed securities announced in September and $45 billion in longer-term Treasuries. This bond-buying policy is open-ended. The low rate will continue as long as the unemployment rate exceeds 6.5 percent and infl ation is below 2.5 percent. Now market participants have numbers. Federal Reserve security holdings will soon surpass $3 trillion, up from less than $800 billion in 2008. The unwinding of this will be a contentious process in the future.
As Kopin Tan of Barron’s says, this is the high season for astrologers and economists. This year has more than the usual unknowns with the recent policy changes and delayed decisions on the debt ceiling and the sequesters. Another year of growth in the 1.5 to 2 percent is likely. There are some positive trends to help off set the fi scal drag: consumer balance sheets have strengthened, energy prices are declining, debt burdens have diminished and housing is now a growth sector. With a lessening of uncertainty that encourages business investment and a diminishing drag from state and local government, continued expansion is likely. Another year of infl ation near 2 percent seems to be in the cards along with low nominal interest rates. Rate increases must come, but not in 2013.
Like most other states, Idaho saw employment gains in 2012. The November data from the Idaho Department of Labor showed year-over-year gains of 1.2 percent for the state, while the Boise Metropolitan area saw a 2.8 percent increase and accounted for the vast bulk of the state’s gain. Boise mirrored the national housing experience with a 94.7 percent increase in permits through November and annual price gains of 6.7 percent (the fourth fastest in the nation in the 3rd Quarter, according to the FHFA House Price Index). The litany of positive data included 3rd Quarter personal income data that showed Idaho had the fi fth most rapid increase in personal income over the quarter at .8 percent, with particular strength in the farm sector. The Brookings Institution’s Metro Monitor had Boise’s recovery ranked fi fth in the top 100 metro areas in the nation. Recovery is the relevant word as employment and income are not back to pre-recession levels. To get Idaho back to its pre-recession employment-to-population ratio would require 57,000 more jobs, according to the Brookings Institution’s Hamilton Project, or fi ve years at the current pace.
Assuming that the recent policy actions only slow growth, the upturn will continue, albeit facing headwinds from abroad and leftovers from the Great Recession, much as we did in 2012. The long-term issues of unfunded liabilities remain in this aging society. Boise’s rebound with its eds, meds, government, tech, and regional center attributes should continue.
15 Economic Outlook
ECONOMIC OUTLOOK
John MitchellEconomist
M & H Economic Consultants
• Received B.A. degree from Williams College and M.S. and Ph.D. degrees from University of Oregon.
• John was a professor of economics at Boise State University for 13 years before joining U.S. Bank in 1983.
• John served as Chief Economist for U.S. Bancorp until 1998 and was the Western Region Economist for U.S. Bancorp from 1998 to 2007.
• John currently serves as a director of Western Capital Corporation, Northwest Bank, and Oregon Mutual Insurance Company. He is also a Trustee of the Tax Free Trust of Oregon.
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