WESTERN SNAPSHOT, FEBRUARY 2006

Boise, Idaho, Retail Market

Frechette

The prime growth engine is the rapid influx of new residents. While job growth in a market with only 3.5 percent unemployment is drawing people, many are moving here primarily for the lifestyle. They have money in their pockets from selling homes in an inflated market and can live much more comfortably here. Many are also moving here to start their own businesses including retail franchises.

Retail Projects

Existing neighborhoods are seeing some retail activity with new tenants and refurbished centers, but the real action is in developing neighborhoods in west Boise and cities like Meridian, Eagle and Nampa. Eagle Road, which connects the city of Eagle with Interstate 84 and is the dividing line between Boise and the city of Meridian, has exploded with growth. Developers Diversified Realty (DDR) is finishing a big box center on this five-lane road, and several other projects are either underway or being pre-leased.

In Nampa, 20 miles west of Boise, two big retail projects are just getting started. DDR broke ground on Nampa Gateway, and Issaquah, Washington-based Langly Properties Inc is developing Treasure Valley Marketplace (TVM), anchored by Costco. Both will be about 900,000 square feet and bookend the city along Interstate 84. As of December 2005, Nampa Gateway had not announced any tenants. While Nampa is growing, it only has a population of 65,000. There is considerable well-established retail, so it may be a real battle to lease up both centers anytime soon.

One welcome development is a large, mixed-use project built on four square blocks of Boise's downtown. Called BoDo (for Boise Downtown), it includes a Regal Cinemas multi-screen theater, Office Depot, P.F. Chang's China Bistro, a 14-story Hampton Hotel, many small retail shops and office condos. Boise's downtown has long been dominated by local retailers, but BoDo has brought in many national names including Ann Taylor Loft and Jos. A. Bank.

Lease Rates

Rates in existing shopping centers have increased only slightly in the past few years. Smaller space in many anchored centers can still be found for $13 to $16 per square foot NNN. For the new construction, asking rates per square foot hardly paused in the low $20s while on their way to the upper $20s, and pad sites have done the same thing. Ground prices in the hot areas have hit $28 per square foot, but land values in many existing retail areas are still below $12 per square foot.

Vacancy Rates

Retail vacancy is approximately 7 percent for downtown, neighborhood and big box centers. That figure is down from 9 to 10 percent in the last 2 years. But the real story is the amount of new space that has come on line and been absorbed. About 500,000 square feet of retail space came on line from mid-2004 to mid-2005. As an example, there is virtually no vacancy in the Boise Towne Square Mall.

Who's Leasing

In addition to the national retailers mentioned above, many others, especially restaurants, have moved to the area recently or are currently looking for sites. Kohl's department store has announced its first Idaho store in Boise and a second store will be built in Nampa. Tony Roma's and Fuddrucker's, as well as many fast-food retailers like Del Taco and Taco del Mar, are new here. Many big nationals like The Home Depot, Lowe's Home Improvement Warehouse and Bed Bath & Beyond are leasing their second, third or fourth stores.

Who's Not

In the recent past you could always count on a grocery-anchored site in a new residential area. Headquartered in Boise, Albertsons has about 20 stores in the MSA, but it has been conspicuously absent in the recent building boom due to financial problems. And the few other grocery retailers in Boise — Wal-Mart, Winco and Fred Meyer — are not pioneering the typical grocery-anchored centers in developing areas. They each have five stores in the MSA.

There is room and demand in the grocery sector for another major grocery player or a specialty store like Whole Foods Market. However, being 400 miles from any other major metro area, Boise can present distribution challenges for a setup of less than five stores. Smith's had five sites purchased just before Kroger, parent company of Fred Meyer, bought them out. All five sites were abandoned and redeveloped into other uses.

What's Ahead

The major retail projects currently on the books will keep retailers busy filling all available lease spaces for quite some time. New opportunities for developers will mainly be in neighborhood centers and redeveloping aging centers or downtown buildings. There is a big push right now to develop residential condos in the near downtown area. If downtown Boise gets a big increase in residences, more retail opportunities will arise. The engine driving retail growth is population growth, and no let up is in sight.

Ray Frechette is a retail sales & leasing specialist for NAI Kowallis & Mackey in Boise.


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