Despite remote work and other challenges, office vacancies are low in Idaho
Software company Intuit housed its Idaho operations in this building located in Eagle until it recently closed the site and let go of the employees. (PHOTO: Marc Lutz, IBR)
There are many entrepreneurial-minded individuals who dream of either owning a business or starting one of their own. Even amid the pandemic and during the incredibly volatile up and downs of the economy in the last few years, people are still taking risks and pursuing their dreams.
Idaho is known for its breathtaking scenery and friendly residents, but it is also one of the most business-friendly states in the country, making it ideal for business owners to launch their business.
This bodes well for the commercial real estate industry and those who are looking to fill retail spaces, warehouses or other office spaces – even amid the rise of remote and hybrid work.
This might seem surprising, especially when Intuit recently announced that it was shutting down its Eagle office in an AI-focused pivot that included laying off as many as 1,800 employees, with more than 150 of those in Boise.
Peter Oliver, partner of brokerage services at TOK Commercial explained that while the massive sweep that Intuit did may seem shocking, it is not necessarily indicative of other large companies following a similar path.
“Our vacancies are low compared to other metro markets,” he said. “That’s a good sign. Companies today are realizing the effects of remote work – some of them are seeing productivity challenges, culture changes, and mentoring has become difficult. They are grappling with that. Many places are mandating a return while others are trying to be flexible. I describe Idaho as an entrepreneurial cowboy state: We have a very strong conviction about people working together and doing business face to face.”
Scott Raeber, partner at Colliers Idaho agreed, saying that the commercial market around the Gem State is healthy.
“Remote work has impacted the Idaho market, but not nearly to the extent it has elsewhere,” he shared. “Office vacancies throughout Idaho are healthy at 6 to 7% in the Boise Valley and less than 3% in smaller markets, while absorption is positive to slightly negative. Surprising to most real estate experts across the country, office lease rates have increased steadily since the start of the pandemic. Contrast this with primary office markets like Los Angeles, San Francisco, Denver, Dallas, Atlanta and New York, where vacancy rates range between 25 to 35% with continued negative absorption and steep concessions granted to tenants to renew or occupy new space.”
Greg Gaddis, principal at Tenant Realty Advisors acknowledges that the shift to remote work has impacted companies, but it hasn’t had a huge negative effect on the market – especially in Boise.
“We have subleased offices for companies that have gone remote but those were quickly filled with companies wanting to be in the office or needing more space,” he explained. “The work-from-home challenges employers face is ongoing and is evolving slowly as companies figure out what the future looks like. That said, we have many growing companies in Boise and any spaces that come back to the market will be leased if they are functional and nice … I don’t see a trend of large office spaces hitting the market. Our office market is healthy, and this is contrary to much of the country, especially dense urban areas that have had millions of square feet of office space on the market and continuing to hit the market since 2020.”
Spaces in Intuit’s new building are designed for both in-person and remote work as seen in 2022. On July 10, 2024, the company shuttered operations and fired 157 employees. (PHOTO: courtesy of Intuit)
National tenants are also discovering the benefits of living and working in Idaho.
“Many of these tenants are larger than average for the market ― 10,000 square feet and up,” shared Jennifer McEntee, senior director of office, capital markets for Cushman & Wakefield. “Idaho was, and continues to be, a hot spot for a lot of companies to want to be in for a multitude of reasons, so we are seeing great movement from that. The office market has been active, especially downtown. Deals are taking slightly longer to complete, but they are still getting done, which is a huge win compared to other markets across the nation. Vacancy rates for Boise and the Treasure Valley remain low. We have not seen landlords decreasing lease rates or offering extra concessions which shows how strong our market still is. We’re seeing companies encouraging less remote work and more time in the office in the deals we have worked.”
Raeber shared that some of this year’s highlights in the market include Exyte and Tokyo Electronics collectively leasing 71,000 square feet in Boise. Carrington College also leased 35,000 square feet at 1299 N. Orchard Street in Boise, and Saint Alphonsus purchased two Saltzer Health buildings.
While the commercial real estate market is robust, it’s not without its challenges. Gaddis said that construction costs are rising and will likely continue to increase, which will affect the cost to build out more office space and ultimately, will push rental rates upward.
“We currently do not have any new Class A suburban office space under construction,” he said. “Companies downsizing their square feet but upgrading their office space to encourage workers to come into the office will be hard pressed to find new suburban office space for the next few years. Downtown will be equally challenged.”
Raeber explained, “Challenges for developers are high land cost, construction cost and interest rates. Challenges for investors of office product are high interest rates and low cap rates. Challenges for tenants are finding 2,500 square foot suites. There are approximately 25 buildings with 15,000 square feet or more available, which is a large space in Idaho considering the average office tenant is 5,000 square feet. Of this group approximately 10 buildings can accommodate 40,000 to 80,000 square feet. These are very large blocks of space and could take years to absorb.”
McEntee agreed that the push to revitalize and repurpose existing buildings is becoming more common.
“Companies are looking to incorporate additional ‘cool’ space into their footprint so that the request for in-office attendance is less of a ‘chore’ and more of something employees want to do, due to the environment of the office,” she said. “We are seeing buyers buy and renovate existing buildings which is wonderful to watch from start to finish. One example is Airport Plaza which has been a great success.”
As Idaho continues to expand, so will the need for more homes and business or retail space.
“Most companies are much more productive, and employee mental health is improved with human interaction in an office,” Raeber said. “There will be continued pressure to bring people back into an enticing workspace.”