The closing of Q1 demonstrated that 2021's office market is off to a solid start in the Boise MSA, posting 310,000 square feet of positive net absorption. This is the second strongest quarter (second only to Q4 2020) in the past five years.
Despite the strong absorption numbers, vacancy has increased in 2021, primarily due to new construction and sublease availabilities. 300,000 square feet of new construction was delivered in Q1, in which speculative development accounted for nearly one-quarter. Sublease space rose to 405,000 square feet by end of Q1, compared to roughly 150,000 square feet before COVID-19, as tenants evaluate their space utilization. However, this is still far below larger, especially coastal, markets. By comparison, Salt Lake City has nearly 2.5 million square feet of sublease space on the market, according to CBRE.
The Boise MSA has long been a market with inherent organic growth. Until recently, finding space for this growth was challenging as vacancy mid-2020 had declined to just 5.2 percent. With the additional sublease space available and new construction coming on the market, tenants are able to consider options to fit their size and configuration needs. Tenant improvement allowances continue to be sticking points in some negotiations though, as construction costs remain at historic highs and are unlikely to abate in the near term.
Overall lease rates are likely to remain flat in 2021 given the influx of office inventory, with the exception of newly constructed, Class A projects where the rate is directly tied to the cost of completing a tenant’s space. Asking rates are currently $18.00 per square foot (Annual Full Service), while Class A rates are $22.00 per square foot.