colliers year end report

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YEAR-END 2011


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2012YEAR END

Real EstateMARKETREVIEW

OFFICE

2012YEAR END

1 14

Overview

The Treasure Valley offi ce market improved during 2012, end-ing the year with a 15.4% overall vacancy rate, down from 17.2% twelve months ago. Leasing activity was slightly stronger in the second half of 2012 compared to the fi rst half of the year. The Treasure Valley offi ce market experienced 558,091 square feet of absorption in the second half of 2012, surpassing the 315,686 square feet absorbed during the fi rst half of the year. The down-town periphery had the greatest absorption of any submarket in 2012, with 100,043 square feet of newly leased offi ce space. All other submarkets in the trade area experienced positive absorp-tion with the exception of the southwest submarket.

2012 was a positive year for existing projects such as the 269,000 square foot 8th & Main building in Downtown Boise. Slated for completion in 2014, it is over 76% leased at the time of this publication. Speculative building is still not an op-tion for most developers. Banks remain cautious, requiring signifi cant preleasing for offi ce projects to break ground.

Notable transactions from January - June, 2012 include:

Sorenson Communications — 25,643 square foot lease at Silverstone Corporate Center in Meridian.

CTA Architects — 21,000 square foot lease at 8th & Main in Downtown Boise.

Pinebridge 1 Building in Meridian — 26,037 square foot sale in the fi rst half of 2012.

Notable transactions from July - December 2012 include:

Boise State University — 8,852 square foot purchase in BoDo.

Berkley North Pacifi c — 18,000 square foot lease in the Water Tower Building in Meridian.

EPA — 9,800 square foot lease in the Banner Bank Building in Downtown Boise.


13 2

Asking Rates

Inventory & Vacancy

Colliers International tracks approximately 18.2 million square feet of space in 893 offi ce buildings 5,000 square feet or larger in fi f-teen diff erent submarkets throughout Ada and Canyon Counties. Vacancy continues to decrease slowly throughout the Treasure Valley. The Eagle & North End / Northwest / Garden City submar-kets posted the largest declines in vacancy from mid-year 2012, 10.2% and 5.1% respectively. Canyon County, Meridian and the Cen-tral Bench were the only submarkets in which vacancy increased, posting vacancy rate increases of 3.5%, .4% and 4.1% respectively.

Overall asking rates declined slightly in 2012 to an average of $15.22 full service, down from $15.79 at the beginning of 2012.

Outlook

We expect continued improvement in the offi ce market during 2013. As the market gains strength, rates will begin to increase. In our estimation there are fewer landlord conces-sions being made now as compared to a year ago.

The most signifi cant change in asking rates came from the Southwest, Southeast and Central Bench submarkets. These fi nished the year with asking rates of $14.35, $15.70 and $9.99 respectively. Class “A” offi ce products in Downtown Boise are experiencing lease rates very close to asking prices.

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3 12

Overview

The Treasure Valley retail market picked up momentum in the second half of 2012, and is trending better than similar sized met-ropolitan areas across the West. The overall vacancy rate has dropped to 9.1%, down from 12.3% a year ago. This is due in large part to the increased absorption in the “B” and “C” locations, as well as these three key events:

Local businesses have been adding back employees.

New-to-the-market retailers, either start-ups or fran-chisees are opening new stores.

Chain retailers have adjusted to the shopping habit changes of their customers and are growing and morphing to meet their customer’s needs.

Rents are climbing, mainly on the “A” located centers. There remains a dichotomy between absorption and rents in the “A” locations versus the rest of the market. Even though “A” location absorption, lack of leasable space, fi rmer rents and fewer conces-sions have been a positive point in a dreary economy, other trends are emerging, such as leasing activity in off “A” locations.

Areas that were hit hardest are bouncing back, such as Glen-wood & State Street. Eighteen months ago, the vacancy rate at this intersection stood at 40%. Plantation Shopping Center was a “zombie” center, meaning it had space for lease but the owners were unwilling or unable to deliver space to prospects. Northgate Shopping Center was 25% vacant and an unanchored strip-center in front of Wal-Mart had one tenant and 80% vacancy.

The recovery at these properties is like a snapshot of how the commercial market is rebounding. First, an investor/developer bought the note for Plantation Shopping Center. After foreclosing on the shopping center, he spent $2 million renovating the center. Today, Ross is open and anchors the newly renovated Plantation Shopping Center, which is 90% occupied.

The unanchored strip center in front of Wal-Mart was bought by a tenant who took advantage of the best owner/user fi nanc-ing market in 30 years. Northgate Shopping Center leased their problem space to Goodwill for a thrift store, bringing their occupancy up to 92%.


11 4

Overview

Farm ground, commercial land, residential development, and fi nished residential lots were very active in 2012, however land for industrial use experienced a very low demand in 2012.

The highest priced farm ground transaction reported in 2012 was an auction for $10,000 per acre on a 300 + acre property in Pleasant Valley, northwest of American Falls. This high price was due to the high rental rate for potato land in Eastern Idaho, which averages $800 per acre. By comparison, southwest Idaho farm ground leases have increased to $250 per acre with rates as high as $450.

In all markets we saw medical, retail, service and commercial users taking advantage of lower land prices. In the summer of 2012, Ridley’s Grocery Store, a small-footprint regional grocer, purchased a 30+ acre site in North Kuna for a future store.

detached home building permits issued for all of southern Idaho in 2012. Demand for development land is low with most builders and investors concentrating their eff orts on the vacant developed house lots left over from the housing market downturn in 2007. Canyon County residential lots are experiencing an increase in demand.

Outlook

In 2013 we expect a slight leveling in residential land prices. The recent rapid increases in residential land, lot and fi nished new home pricing will create a price pull-back. Industrial land prices and demand will continue at their current low level throughout 2013. Farm land prices will spike even higher with the next round of land off erings driven by an increase in demand. Expect transactions to occur in the $4,000 to $6,000 per acre range. The supply of new single family lots in Ada County will continue to come from the con-struction of small, manageable phases of existing and new subdivi-sions. Canyon County still has too many vacant developed lots to warrant much new-lot construction. However, just like Ada County, where demand has absorbed the supply of existing lots, Canyon County developers will build new lots in specifi c areas of demand.

Supply and Demand

Absorption of single family house lots continues at a manageable and sustainable level in Southwest Idaho with 3,916 single family

Inventory & Vacancy

Colliers International tracks approximately 20.7 million square feet of inventory in the Boise Metro market. This is based upon buildings and retail centers 5,000 square feet and larger (excluding the Boise Towne Square Mall). Vacancy declined dramatically in all but the following three submarkets in 2012: Meridian, Central Bench and the Southeast submarkets.

Triple Net Asking Rates

Overall retail asking rates have risen in the second half of 2012, moving to $13.38 from $13.31 six months ago. Individual submarkets showing the highest increases in rental rates in 2012 were Can-yon County; increasing by $1.97 to $13.76 per square foot and the Northwest submarket; increasing by $1.05 to $12.50 per square foot.

Outlook

Expect more new retailers, especially quick service restaurants to enter the Treasure Valley in 2013. There will also be more deals on “off -the-market” properties. For example, Chick-Fil-A made a deal on Broadway to take a site where there was an operat-ing restaurant. More tenants will make plays for “A” properties and pay the high cost of the location. All grocery stores, includ-ing gourmet, Wal-Mart neighborhood, convenience, independent and discount grocery stores, will be major news stories in 2013.

Tenants continue to lock into longer leases, averaging close to fi ve years, as opposed to the three year average term length prevalent three years ago.

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YEAR-END 2011

5 10

Overview

Lease rates throughout the Treasure Valley stabilized in the second half of 2012, and the gap between owner/tenant value expectation continues to close. The stabilization of rates has led to asking rates being much closer to deal rates in the second half of 2012.

Industrial sales activity has increased during the second half of 2012, but is limited by the amount of inventory for sale. This demand is driven by two factors: companies purchasing space instead of leasing it, and healthier construction and trade sectors in the market. Attractive fi nancing and a drop in prices allows users to purchase facilities and lease them back to corporate entities while maintaining a strong balance sheet.

Inventory and Vacancy

Colliers International tracks 1,136 industrial buildings containing more than 35.5 million square feet. A total of 3,330,999 square feet of industrial space is currently vacant, giving the valley a total vacancy rate of 9.4%.

Notable transactions include:

Nampa Submarket

Activity in the Nampa submarket was very strong in 2012, espe-cially the demand for offi ce space under 1,000 SF. The Down-town Nampa retail market experienced an increase in vacancy of 3.8%, and a decrease in asking rates of $0.23. There were several signifi cant transactions in Nampa over the past 12 months that include:

The Idaho Hop House leased 6,580 square feet in Downtown Nampa.

The former Crescent Brewery sold in June, 2012.

Wal-Mart purchased 12.51 acres of development ground.

Deseret Industries leased 12,844 square feet of retail space in Holly Plaza.

Caldwell Submarket

Activity in Caldwell remained challenging in 2012. However, Gard-ner Company announced a new 60,000 square foot medical offi ce development next to West Valley Medical Center, with construction scheduled to begin in 2013.

Offi ce vacancy rates in Caldwell increased in 2012 by 6.1% to 12.4%, while offi ce asking rates decreased by $3.11 per square foot, ending the year at $10.75 per square foot. The Caldwell Industrial market has remained stagnant in 2012, with a few large vacant facilities keeping vacancy high.

Signifi cant activity in Caldwell includes:

Sale of the former Blue Elephant car wash.

Idaho Center Submarket

The Idaho Center submarket is another bright spot in Canyon County, experiencing a decrease in offi ce vacancy of 6.3%, and a decrease of 7.6% in retail vacancy over the past twelve months.

Karcher Submarket

The Karcher submarket experienced increased activity with several new single end-user buildings constructed in 2012. Competitive lease rates are generating interest in good retail locations.

Southwark Metal Manufacturing — Purchased 12.7 acres in Sky Ranch Business Park, Caldwell, and built a 79,500 square foot manufacturing plant expansion in Idaho.

5B Investments, LLC – Purchased 255 Steelhead Way in Boise, a 62,000 square foot former Applied Materials industrial facility; the buyer had a tenant in-tow.

ATCO Structure & Logistics — Leased a 203,500 square foot building with 17 acres at the Gateway West Industrial Center in Pocatello for a new manufacturing site in Idaho.

Dixon Container Co. – Purchased 3210 E. Amity Road in Boise, a 53,000 square foot expansion facility located near their corporate headquarters.

Greenstar Building Systems – Purchased 1425 Sun-nyside Road in Weiser, a 67,000 square foot manufac-turing building for a new production site.


9 6

Outlook

Sales activity will remain strong and values of existing buildings will increase as demand continues to exceed quality supply. In-

There is still signifi cant interest in distressed, bank owned, and property for auction, however there are few available sites, making it a competitive segment.

Vacancy rates in 2013 will continue to decline due to limited new costruction. Leasing activity should remain steady as the market recovers and landlords regain negotiating power.

This may be the last year owner/users can take advantage of the low interest rates and SBA fi nancing opportunities, as interest rates are expected to increase later in 2013. Owner/users are looking to take advantage of government-backed fi nancing options as well as historically low interest rates in 2013, hedg-ing that the fi nancing market will change in the near future as the national economy continues to work through fi scal legislation.

dustrial development will be limited to local developers who are building to accommodate current relationships. While in-dustrial development will be limited, 2013 could be the year when new speculative development is planned in anticipation of increasing demand and the corresponding increase in lease rates.

Due to the lack of quality existing facilities available to purchase, the industrial land market will gain momentum in Q3 and Q4 of 2013.

Outlook

Activity throughout Canyon County was very strong in the second half of 2012. The declining unemployment rate, currently at 7.5%, has direct correlation to vacancy in the retail, offi ce and indus-trial specialties, and has had a positive impact on real estate in the county. This was most notable in Downtown Nampa where the vacancy rate fell by 1.7% to its current rate of 4.4%. Canyon County vacancy rates have declined in the retail and industrial markets, ending the year at 8.9% and 10.9% respectively. How-ever, the overall Canyon County offi ce market experienced an in-crease in overall vacancy, ending 2012 at 10.6%.

There was an increased demand for mid-size industrial properties for sale ranging in size from 5,000-10,000 square feet in 2012. This demand was also present in the offi ce market, which experienced an increase in owner/users who purchased offi ce buildings in 2012. Available offi ce space above 4,000 square feet in Canyon County is in short supply.

Franklin Flex — Nampa: 40,000 square foot invest-ment purchase of fl ex space

Signature transactions and projects in 2012:

Southwarks Building — Caldwell: 79,000 square foot build-to-suit manufacturing plant for HVAC ducting.

Library Square — Nampa: 60,000 square foot new library, 34,500 square foot offi ce / retail space, and 300-space parking garage

I-84 Construction: The completion of an 8-lane ex-pansion from Nampa to Boise and the new 10-Mile ramp have greatly improved the connectivity between Ada and Canyon Counties.

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YEAR-END 2011

7 8

The Investment Market

Sales of commercial real estate in 2012 continue to increase,recording over $283 billion worth of signifi cant transactions, which represents a 24% increase from 2011. Apartments were the biggest mover, with transaction volume up 47%. Over one-third of all transactions were done on a portfolio or REIT basis.

The primary drivers of this increase are: an improved econom-ic sentiment, a stronger lending environment, and an increased appetite of various funds to get off the sidelines.

According to RC Analytics, overall commercial prices are within 20% of peak levels, albeit there are variations in value swings amongst property types. None of the 35 core markets have re-covered back to peak pricing, but 15 of those markets’ apartment sectors have recovered back to, or above peak pricing. The following West-based cities have apartment pricing that is higher than it was during the prior peak: San Francisco, San Jose, Seattle, Denver, and Oakland. These markets also saw some of the largest increases in transaction volume during 2012.

Lending

According to Amherst Securities, new defaults of commercial mort-gages fell to their lowest levels of the cycle in the fourth quarter of 2012. 80% of CMBS loans maturing were paid off , which is a vast improvement from where it’s been. According to RC Analyt-ics, of the $394 billion of commercial mortgages becoming troubled over the past cycle, 58% have now been resolved and $164 billion remains to be worked out.

Lenders have continually shown a healthier appetite to lend. Life insurance companies are starting to compete with Fannie and Fred-die on apartment loans. The CMBS market is making its way back, and local banks have improved their appetite for commercial loans on investment property.

National Outlook

The national sentiment is that the market looks healthy. Investment dollars will continue to chase core assets at a premium. The lending market should continue to support the transaction volume.

Outside of core assets, the hottest sectors will continue to be apart-ments and single-tenant NNN, grocery-anchored, drug or dollar-store based retail.

Regional

Regionally, the West seems to be recovering at a healthier rate with more focused interest from investors. Three of the top fi ve performing markets in 2012 in terms of overall volume were on the West coast (Seattle, San Francisco, Los Angeles).

Sentiment from vested players is that 2013 will see continued improvement.

Western cities account for nine of the top 20 performing apart-ment markets (San Jose, San Francisco, Orange County, San Diego, Seattle, Portland, Los Angeles, Denver, and Oakland).

According to a survey done by Western Real Estate Business, most vested players believe that the market will continue to improve in 2013.

Retail will continue to be strong, primarily because out-of-state investors understand quick-serve restaurants and dollar stores. They can translate well-located, high traffi c locations with a good retail concept into a performing asset in any market.

Investment Year in Review

Local Outlook

The local market has experienced healthy absorption in the offi ce and retail segments. It has also seen stable occupancy in apartments for the past 2 ½ years. This has led to a strong push in development of retail, offi ce, and apartments.

Local transaction focus will be similar to national trends, with investors being primarily interested in apartments and retail.

St Luke’s Canyon County Expansion: 80,000 square feet

From a development standpoint, strong indicators in multi-family have led to a healthy amount of building. From 2012 through 2013 we should see an increase in inventory of 8-10% to our market.

Here are some other exciting projects of note:

Local

The local investment market saw more activity in 2012 than re-cent years, and Boise has garnered national attention in 2012 as a business-friendly, recovering market. The Brookings Institute listed Boise as one of the 20 fastest recovering cities in the nation based on housing prices, growth, and employment statistics. KPMG declared that Boise is the lowest-cost city to do business in the West.

Some sales of note occurring 2012 include:

From a transaction standpoint, the most active segments in the local market have been apartments and retail.

Doubletree Club Hotel, (158 rooms)

Park River Apartments, (91 units)

Woodbridge Apartments, (200 units)

Lodge at Maple Grove Apartments, (154 units)

Lancaster Apartments, (30 units)

Pinebridge offi ce (26,000 square feet)

Eagle View Plaza retail (20,000)

Cherry Wood Plaza retail (15,800)

8th & Main: 269,000 square foot offi ce tower anchored by Zions Bank, Holland & Hart, Ruths’ Chris.

Whole Foods: 150,000 square foot retail anchored by Whole Foods and Walgreens.

JUMP: 100,000 square foot urban-interactive park with parking garage developed by Simplot.

Apartments completed or under construction: Boise State (360 beds), River and 12th Sr. Housing (53 units), Affi nity Senior Housing (150 units), Union Square (120 units), Regency at River Valley (240 units), Gramercy (48 units), Crossfi eld (80 units), Brassy Cove (256 units), and Avondale Place (200 units).

The Village at Meridian: 723,000 square foot (200,000 complete) retail/lifestyle center in Meridian on Eagle Road.


9 6

Outlook

Sales activity will remain strong and values of existing buildings will increase as demand continues to exceed quality supply. In-

There is still signifi cant interest in distressed, bank owned, and property for auction, however there are few available sites, making it a competitive segment.

Vacancy rates in 2013 will continue to decline due to limited new costruction. Leasing activity should remain steady as the market recovers and landlords regain negotiating power.

This may be the last year owner/users can take advantage of the low interest rates and SBA fi nancing opportunities, as interest rates are expected to increase later in 2013. Owner/users are looking to take advantage of government-backed fi nancing options as well as historically low interest rates in 2013, hedg-ing that the fi nancing market will change in the near future as the national economy continues to work through fi scal legislation.

dustrial development will be limited to local developers who are building to accommodate current relationships. While in-dustrial development will be limited, 2013 could be the year when new speculative development is planned in anticipation of increasing demand and the corresponding increase in lease rates.

Due to the lack of quality existing facilities available to purchase, the industrial land market will gain momentum in Q3 and Q4 of 2013.

Outlook

Activity throughout Canyon County was very strong in the second half of 2012. The declining unemployment rate, currently at 7.5%, has direct correlation to vacancy in the retail, offi ce and indus-trial specialties, and has had a positive impact on real estate in the county. This was most notable in Downtown Nampa where the vacancy rate fell by 1.7% to its current rate of 4.4%. Canyon County vacancy rates have declined in the retail and industrial markets, ending the year at 8.9% and 10.9% respectively. How-ever, the overall Canyon County offi ce market experienced an in-crease in overall vacancy, ending 2012 at 10.6%.

There was an increased demand for mid-size industrial properties for sale ranging in size from 5,000-10,000 square feet in 2012. This demand was also present in the offi ce market, which experienced an increase in owner/users who purchased offi ce buildings in 2012. Available offi ce space above 4,000 square feet in Canyon County is in short supply.

Franklin Flex — Nampa: 40,000 square foot invest-ment purchase of fl ex space

Signature transactions and projects in 2012:

Southwarks Building — Caldwell: 79,000 square foot build-to-suit manufacturing plant for HVAC ducting.

Library Square — Nampa: 60,000 square foot new library, 34,500 square foot offi ce / retail space, and 300-space parking garage

I-84 Construction: The completion of an 8-lane ex-pansion from Nampa to Boise and the new 10-Mile ramp have greatly improved the connectivity between Ada and Canyon Counties.


YEAR-END 2011

5 10

Overview

Lease rates throughout the Treasure Valley stabilized in the second half of 2012, and the gap between owner/tenant value expectation continues to close. The stabilization of rates has led to asking rates being much closer to deal rates in the second half of 2012.

Industrial sales activity has increased during the second half of 2012, but is limited by the amount of inventory for sale. This demand is driven by two factors: companies purchasing space instead of leasing it, and healthier construction and trade sectors in the market. Attractive fi nancing and a drop in prices allows users to purchase facilities and lease them back to corporate entities while maintaining a strong balance sheet.

Inventory and Vacancy

Colliers International tracks 1,136 industrial buildings containing more than 35.5 million square feet. A total of 3,330,999 square feet of industrial space is currently vacant, giving the valley a total vacancy rate of 9.4%.

Notable transactions include:

Nampa Submarket

Activity in the Nampa submarket was very strong in 2012, espe-cially the demand for offi ce space under 1,000 SF. The Down-town Nampa retail market experienced an increase in vacancy of 3.8%, and a decrease in asking rates of $0.23. There were several signifi cant transactions in Nampa over the past 12 months that include:

The Idaho Hop House leased 6,580 square feet in Downtown Nampa.

The former Crescent Brewery sold in June, 2012.

Wal-Mart purchased 12.51 acres of development ground.

Deseret Industries leased 12,844 square feet of retail space in Holly Plaza.

Caldwell Submarket

Activity in Caldwell remained challenging in 2012. However, Gard-ner Company announced a new 60,000 square foot medical offi ce development next to West Valley Medical Center, with construction scheduled to begin in 2013.

Offi ce vacancy rates in Caldwell increased in 2012 by 6.1% to 12.4%, while offi ce asking rates decreased by $3.11 per square foot, ending the year at $10.75 per square foot. The Caldwell Industrial market has remained stagnant in 2012, with a few large vacant facilities keeping vacancy high.

Signifi cant activity in Caldwell includes:

Sale of the former Blue Elephant car wash.

Idaho Center Submarket

The Idaho Center submarket is another bright spot in Canyon County, experiencing a decrease in offi ce vacancy of 6.3%, and a decrease of 7.6% in retail vacancy over the past twelve months.

Karcher Submarket

The Karcher submarket experienced increased activity with several new single end-user buildings constructed in 2012. Competitive lease rates are generating interest in good retail locations.

Southwark Metal Manufacturing — Purchased 12.7 acres in Sky Ranch Business Park, Caldwell, and built a 79,500 square foot manufacturing plant expansion in Idaho.

5B Investments, LLC – Purchased 255 Steelhead Way in Boise, a 62,000 square foot former Applied Materials industrial facility; the buyer had a tenant in-tow.

ATCO Structure & Logistics — Leased a 203,500 square foot building with 17 acres at the Gateway West Industrial Center in Pocatello for a new manufacturing site in Idaho.

Dixon Container Co. – Purchased 3210 E. Amity Road in Boise, a 53,000 square foot expansion facility located near their corporate headquarters.

Greenstar Building Systems – Purchased 1425 Sun-nyside Road in Weiser, a 67,000 square foot manufac-turing building for a new production site.


11 4

Overview

Farm ground, commercial land, residential development, and fi nished residential lots were very active in 2012, however land for industrial use experienced a very low demand in 2012.

The highest priced farm ground transaction reported in 2012 was an auction for $10,000 per acre on a 300 + acre property in Pleasant Valley, northwest of American Falls. This high price was due to the high rental rate for potato land in Eastern Idaho, which averages $800 per acre. By comparison, southwest Idaho farm ground leases have increased to $250 per acre with rates as high as $450.

In all markets we saw medical, retail, service and commercial users taking advantage of lower land prices. In the summer of 2012, Ridley’s Grocery Store, a small-footprint regional grocer, purchased a 30+ acre site in North Kuna for a future store.

detached home building permits issued for all of southern Idaho in 2012. Demand for development land is low with most builders and investors concentrating their eff orts on the vacant developed house lots left over from the housing market downturn in 2007. Canyon County residential lots are experiencing an increase in demand.

Outlook

In 2013 we expect a slight leveling in residential land prices. The recent rapid increases in residential land, lot and fi nished new home pricing will create a price pull-back. Industrial land prices and demand will continue at their current low level throughout 2013. Farm land prices will spike even higher with the next round of land off erings driven by an increase in demand. Expect transactions to occur in the $4,000 to $6,000 per acre range. The supply of new single family lots in Ada County will continue to come from the con-struction of small, manageable phases of existing and new subdivi-sions. Canyon County still has too many vacant developed lots to warrant much new-lot construction. However, just like Ada County, where demand has absorbed the supply of existing lots, Canyon County developers will build new lots in specifi c areas of demand.

Supply and Demand

Absorption of single family house lots continues at a manageable and sustainable level in Southwest Idaho with 3,916 single family

Inventory & Vacancy

Colliers International tracks approximately 20.7 million square feet of inventory in the Boise Metro market. This is based upon buildings and retail centers 5,000 square feet and larger (excluding the Boise Towne Square Mall). Vacancy declined dramatically in all but the following three submarkets in 2012: Meridian, Central Bench and the Southeast submarkets.

Triple Net Asking Rates

Overall retail asking rates have risen in the second half of 2012, moving to $13.38 from $13.31 six months ago. Individual submarkets showing the highest increases in rental rates in 2012 were Can-yon County; increasing by $1.97 to $13.76 per square foot and the Northwest submarket; increasing by $1.05 to $12.50 per square foot.

Outlook

Expect more new retailers, especially quick service restaurants to enter the Treasure Valley in 2013. There will also be more deals on “off -the-market” properties. For example, Chick-Fil-A made a deal on Broadway to take a site where there was an operat-ing restaurant. More tenants will make plays for “A” properties and pay the high cost of the location. All grocery stores, includ-ing gourmet, Wal-Mart neighborhood, convenience, independent and discount grocery stores, will be major news stories in 2013.

Tenants continue to lock into longer leases, averaging close to fi ve years, as opposed to the three year average term length prevalent three years ago.


3 12

Overview

The Treasure Valley retail market picked up momentum in the second half of 2012, and is trending better than similar sized met-ropolitan areas across the West. The overall vacancy rate has dropped to 9.1%, down from 12.3% a year ago. This is due in large part to the increased absorption in the “B” and “C” locations, as well as these three key events:

Local businesses have been adding back employees.

New-to-the-market retailers, either start-ups or fran-chisees are opening new stores.

Chain retailers have adjusted to the shopping habit changes of their customers and are growing and morphing to meet their customer’s needs.

Rents are climbing, mainly on the “A” located centers. There remains a dichotomy between absorption and rents in the “A” locations versus the rest of the market. Even though “A” location absorption, lack of leasable space, fi rmer rents and fewer conces-sions have been a positive point in a dreary economy, other trends are emerging, such as leasing activity in off “A” locations.

Areas that were hit hardest are bouncing back, such as Glen-wood & State Street. Eighteen months ago, the vacancy rate at this intersection stood at 40%. Plantation Shopping Center was a “zombie” center, meaning it had space for lease but the owners were unwilling or unable to deliver space to prospects. Northgate Shopping Center was 25% vacant and an unanchored strip-center in front of Wal-Mart had one tenant and 80% vacancy.

The recovery at these properties is like a snapshot of how the commercial market is rebounding. First, an investor/developer bought the note for Plantation Shopping Center. After foreclosing on the shopping center, he spent $2 million renovating the center. Today, Ross is open and anchors the newly renovated Plantation Shopping Center, which is 90% occupied.

The unanchored strip center in front of Wal-Mart was bought by a tenant who took advantage of the best owner/user fi nanc-ing market in 30 years. Northgate Shopping Center leased their problem space to Goodwill for a thrift store, bringing their occupancy up to 92%.


13 2

Asking Rates

Inventory & Vacancy

Colliers International tracks approximately 18.2 million square feet of space in 893 offi ce buildings 5,000 square feet or larger in fi f-teen diff erent submarkets throughout Ada and Canyon Counties. Vacancy continues to decrease slowly throughout the Treasure Valley. The Eagle & North End / Northwest / Garden City submar-kets posted the largest declines in vacancy from mid-year 2012, 10.2% and 5.1% respectively. Canyon County, Meridian and the Cen-tral Bench were the only submarkets in which vacancy increased, posting vacancy rate increases of 3.5%, .4% and 4.1% respectively.

Overall asking rates declined slightly in 2012 to an average of $15.22 full service, down from $15.79 at the beginning of 2012.

Outlook

We expect continued improvement in the offi ce market during 2013. As the market gains strength, rates will begin to increase. In our estimation there are fewer landlord conces-sions being made now as compared to a year ago.

The most signifi cant change in asking rates came from the Southwest, Southeast and Central Bench submarkets. These fi nished the year with asking rates of $14.35, $15.70 and $9.99 respectively. Class “A” offi ce products in Downtown Boise are experiencing lease rates very close to asking prices.


2012YEAR END

Real EstateMARKETREVIEW

OFFICE

2012YEAR END

1 14

Overview

The Treasure Valley offi ce market improved during 2012, end-ing the year with a 15.4% overall vacancy rate, down from 17.2% twelve months ago. Leasing activity was slightly stronger in the second half of 2012 compared to the fi rst half of the year. The Treasure Valley offi ce market experienced 558,091 square feet of absorption in the second half of 2012, surpassing the 315,686 square feet absorbed during the fi rst half of the year. The down-town periphery had the greatest absorption of any submarket in 2012, with 100,043 square feet of newly leased offi ce space. All other submarkets in the trade area experienced positive absorp-tion with the exception of the southwest submarket.

2012 was a positive year for existing projects such as the 269,000 square foot 8th & Main building in Downtown Boise. Slated for completion in 2014, it is over 76% leased at the time of this publication. Speculative building is still not an op-tion for most developers. Banks remain cautious, requiring signifi cant preleasing for offi ce projects to break ground.

Notable transactions from January - June, 2012 include:

Sorenson Communications — 25,643 square foot lease at Silverstone Corporate Center in Meridian.

CTA Architects — 21,000 square foot lease at 8th & Main in Downtown Boise.

Pinebridge 1 Building in Meridian — 26,037 square foot sale in the fi rst half of 2012.

Notable transactions from July - December 2012 include:

Boise State University — 8,852 square foot purchase in BoDo.

Berkley North Pacifi c — 18,000 square foot lease in the Water Tower Building in Meridian.

EPA — 9,800 square foot lease in the Banner Bank Building in Downtown Boise.


YEAR-END 2011


colliers year end report

Documents

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square feet of absorption

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