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Data shows state of local commercial real estate, expert says market ‘really fortunate’

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COVID-19 Idaho

Peter Oliver calls himself an optimist. The partner in TOK Commercial Real Estate walked through the major sectors of the local commercial market and thinks he sees bright spots.

“I’m a glass-half-full kind of guy,” he said in an interview earlier this month. “We went into (COVID-19) with the healthiest market I’ve seen in the 28 years I’ve been practicing here. I think we are really fortunate to be in the spot we are in.”

Recent reports from Oliver’s firm, as well as competitor Colliers International, acknowledge COVID-19 is having an impact.

Data and details

In its May report looking at the first quarter, Colliers noted the data didn’t show big impacts – but could.

“We saw little to no reduction in asking rates or transaction volume during the first three months of 2020,” Colliers’ report noted. “The pandemic may impact the majority of real estate sectors in the second quarter.”

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BVA Development
Mutual of America

For its part, TOK started publishing a regular report on the health of the market. It focused on unconventional metrics like sales pipeline activity and even requests for rent relief. Oliver said those metrics show signs of progress from the early days of the pandemic.

“We manage over six million square feet of office, industrial and retail, and our rent deferral requests have dropped significantly,” Oliver said. “That’s dropped off and people are reopening.”

While he said reports, in general, have been positive, there are possible bumps in the road – especially as Small Business Administration Paycheck Protection Program funds run out. We also spoke before the recent rise in cases and new restrictions in Ada County.

Retail

“The retail sector has been hardest hit, no question,” he said.

Data provided by both Colliers and TOK showed strong growth in the retail sector in the first part of the year. Colliers said asking rates rose slightly in the first few months of the year. Despite the pandemic, Oliver thinks retail will return to strength.

TOK’s latest report shows the first uptick in vacancy since for retail since late 2017 – moving from 6.23% vacant in Q1 to 6.75% in Q2.

He said population growth could continue – and with major employers across the country letting workers shift to remote operations, Boise could continue to grow.

[New high-end maternity and baby store set for The Owyhee in Downtown Boise]

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BVA Development
Mutual of America

While several restaurants closed in the wake of COVID-19, and more could close in coming months, it presents opportunity.

“If (a new restaurant) can find an existing space with fixtures, it presents a pretty good opportunity. They are all struggling with reconfiguring an existing space to meet social distancing – but they are figuring it out.”

He noted that the weeks-long shutdown of dining rooms statewide could provide a new long-term revenue source.

“A number of local quality restaurants that have never done takeout or curbside – they were forced into it. It was a little clunky at first, but they adapted and it’s produced a new revenue source.”

[Iconic Bench diner won’t reopen after COVID shutdown, owner plans new drive-thru]

But Oliver said the pandemic can separate restaurants into two distinct categories.

“The operators that were good operators that had some reserves put away and were nimble and able to pivot – they are going to work through this,” he said. “If you were a tired concept and on thin margins and didn’t have reserves and didn’t pivot – those are going to be the casualties.”

Office

“Office folks that I work with cannot wait to get back to work,” he said. “There are some people and some segments that remote work will make sense,” harkening to his comments about larger companies moving to more remote work. “At the end of the day, what companies have learned – people are more productive in an office. It’s hard to have collaboration from your homes. It will be interesting to watch evolve.”

Office vacancy data, courtesy TOK CRE

Oliver said he thinks offices will see less dense configurations than in the past. It could lead some to move out of existing space that is configured for lots of tight cubicles – and look to lease somewhere else.

[Large semiconductor company set to expand Boise presence]

“Companies may have to retrofit and make modifications, which could be disruptive in an existing space. Everyone will have a varying degree of comfort.”

TOK’s data showed vacancy rates virtually flat from the first quarter.

Industrial

Oliver said the industrial sector hasn’t seen a significant impact. As we’ve noted in the past, the industrial market in the Treasure Valley is tight.

He said the industrial market continues to be tight as companies look for new space, or in the case of Amazon, build new facilities. The TOK report for the second quarter reflects that – with vacancy for industrial space decreasing, despite the pandemic.

Healthy going in…

Reflecting that optimism, Oliver likens it to surgery.

“If (you) have to have surgery on your knee, you’re going to get yourself in the best shape you can before the surgery,” he said. “We were in very good shape going into this. There is no question there’s going to be some casualties, but we are working through it and are going to come out pretty healthy.”

He said Boise’s remote nature could be a key in the future.

“The events of the last three months are only going to increase the visibility of Boise, Idaho,” he said. “One of our knocks – almost the whole time I’ve lived here is ‘you are too remote’. We are the largest most remote metro in the country. Now that’s a huge selling point.”

Disclosure: TOK is a BoiseDev sponsor. The firm had no role in the selection or editorial content of this story.

Don Day
Don is the founder and editor of BoiseDev. He is a National Edward R. Murrow Award winner and a Stanford University John S. Knight Fellow.

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