Most of us can picture old shopping centers or malls that become tired and lose tenants in favor of newer, better-located retail development. Locally, visions of the Karcher Mall or Vista Village shopping centers come to mind. Such was the case with the Boise Research Center (BRC), Boise’s first mixed-use business park.
Located in west Boise adjacent to the Hewlett-Packard campus, BRC was developed by Brighton Corp. Most of the construction occurred in the mid to late 1990s, with over 800,000 square feet completed by 2000. BRC was well planned, with a mixture of residential, retail, office, and light industrial and also had an anchor tenant with the YMCA.
Tenants were attracted by the amenities of a planned development with covenants and restrictions (CC&R’s) that ensured architectural consistency and quality landscaping. Major tenants leased space or purchased ground and built buildings. Tenants such as DirecTV, Extended Systems, and Electronic Data Systems (EDS) established large facilities with significant employment.
HP and many of its affiliated companies and vendors leased space. With significant employment, other service-oriented tenants followed, such as day care, dry cleaning, neighborhood medical, and restaurants. Life was good at BRC.
In 2002, two new business parks were getting started in Meridian at the intersection of I-84 and Eagle Road. Silverstone Corporate Campus and El Dorado offered businesses something that BRC did not have: freeway access.
Over the next few years, tenants began to migrate to the new business parks as their leases rolled over. Together with HP downsizing and a heavy dose of economic recession, BRC experienced significant vacancy and loss of tenants, with negative absorption hitting 121,000 square feet in 2009. The vacancy rate reached as high as 29.08 percent by October 2011. Average asking rental rates declined from $16.50 per square foot in 2007 to $12 in 2011.
Three commercial buildings in BRC that had been acquired by DBSI were caught in the bankruptcy process, foreclosed upon, or otherwise deemed “distressed.”
2011 breathes new life
With high vacancy and a mixture of distressed properties, opportunities emerge for tenants and buyers looking to benefit from the reset of values in commercial real estate. Several significant transactions in 2011 are dramatically changing the vacancy and vibrancy of the Boise Research Center.
Idaho Power (former EDS call center, 75,600 square feet), Bodybuilding.com (former Extended Systems building, 98,574 square feet), and Syringa Networks (Genesis building, 49,624 square feet) have purchased or leased buildings and will be investing significant capital in building renovations and tenant improvements.
Several other tenants are either expanding or downsizing (and remaining in BRC), resulting in 184,000 square feet of net absorption so far this year. The increase in occupancy means that approximately 500 employees will call Boise Research Center their “new home” over the next few months, which will also be a boost for other restaurant and retail tenants in the area.
We are forecasting that the vacancy rate will drop to 10.4 percent as these new tenants complete their improvements and take occupancy. This is well below the overall market vacancy rate of 14.01 percent.
As the market experiences an uncertain economic climate and high unemployment, we anticipate 2012 will continue with a sluggish recovery; however, there are many bright spots and positive outcomes. As the real estate cycle continues to work through some of these challenges, opportunities are created. Financing is available, especially for owner-occupied properties. And from what we have seen so far in 2011, tenants and buyers are taking advantage as we move through the real estate cycle.
BRC Office Vacancy
2007 — 11.3%
2008 — 9.9%
2009 — 24.6%
2010 — 20.6%
2011 — 10.4%
BRC Office Absorption
2007 — 40,000 SF
2008 — 12,000 SF
2009 — -121,000 SF
2010 — 33,000 SF
2011 — 184,000 SF
BRC Average Office Rents (Actual Rents – FLSV)
2007 — $16.50
2008 — $16.00
2009 — $16.25
2010 — $14.00
2011 — $12.00
This guest analysis was written by Al Marino, a partner at Thornton Oliver Keller Commercial Real Estate in Boise. He specializes in sales and leasing of office properties. He may be reached at (208) 947-0811 or firstname.lastname@example.org.