By Bryan Churchill, Vice President, Senior Relationship Manager, WaFd Bank
Although the COVID-19 pandemic is creating fresh economic uncertainty nationally and globally, the residential and commercial real estate industries have remained strong across our region. Ranked the No. 1 hottest real estate market for 2020, by Realtor.com, Boise continues to see an influx of workers relocating from around the Pacific Northwest and California. The pandemic appears to have accelerated trends in place before COVID-19, yet with new challenges as home builders and developers strive to keep up.
Influx of remote workers fueling continued housing boom
Idaho has long been a draw for people looking to escape the congestion and high cost of living of larger metropolitan areas, and the pandemic only seems to have accelerated the Treasure Valley’s explosive growth.
While our region has increasingly become a destination for telecommuters over the past decade or so, the pandemic is poised to increase demand further as millions of newly remote workers are able to choose where they want to live. In fact, a Gallup poll conducted this spring, during the early days of the pandemic, found that 60% of Americans now working from home would prefer to work remotely “as much as possible” after the restrictions are lifted.
Buyers from places like Seattle, Portland and the Bay Area are making their way to the Treasure Valley, drawn by the slower pace, friendly people and easy access to the outdoors. Coupled with lower costs of living and more casual Homeowner Association’s it’s easy to understand the region’s appeal.
For home builders, this attraction has led to increased demand and a heightened appreciation for home office space.
Dedicated home office space is now a must have
Flexible home office space has been a regular feature in most new housing stock for some time. Now, with the increase in remote work amidst the COVID-19 pandemic, home office space is contributing to even higher demand for new construction. Builders began incorporating this feature about a decade ago as empty nesters began flocking to the area – many following their children who had moved to Boise some years earlier and had since started families. These buyers were looking for homes with spaces that could easily be converted from guest room to home office and back, and builders obliged.
Many new residents are gravitating to planned communities where they can be close to amenities. At WaFd Bank, we expect to see demand grow for 55+ communities, as many of those empty nesters who arrived after the last economic recession look to downsize. Strict multifamily housing projects also continue to do well, including in the downtown core, which offers a unique lifestyle close to recreation. In fact, most buildings in the downtown core are leased before they’re even vertical. This trend has led many builders to return at a brisk pace to secure new financing to develop new inventory.
Keeping up with demand amidst COVID-19
Builders are experiencing some pain points operating in this new normal. The biggest challenge is they cannot seem to build fast enough to meet demand. This is impacted by a range of factors including unexpected supply chain shocks and spikes in lumber prices, which tend to happen in summer months, but also may be arising due to COVID safety measures instituted by suppliers.
Like all industries, builders now must also address potential health and safety risks tied to the pandemic – a significant investment of time and resources. By establishing a relationship with a local banker, a regional lender can help provide financing at a steady pace and enable continued investment in inventory, particularly during times of change.
Office and retail face uncertainty while demand for industrial and flex space soar
On the commercial side, Treasure Valley’s real estate market has remained relatively healthy – though not without uncertainty. The pandemic has introduced a great deal of question around when office and retail spaces can go back to normal levels of use. Depending on how long these conditions persist, projects that rely on office or retail components to generate cash flow may need to raise more capital before garnering interest from local banks.
Commercial lenders want to find and fund successful projects – they want to see projects that make sense in the current environment. Mixed-use developments – such as those with office or retail space below and housing above – may be difficult to pencil out right now, especially if they’re reliant on that income for qualification. On the other hand, demand for industrial and flex space is currently at a premium and has been outpacing supply. Flex space in particular – which might feature an office up front with shop space in back – is seeing strong demand from manufacturers and machinists. Likewise, self-storage remains a very attractive industry, filling up nearly as quickly as new homes and apartments.
Given the fluidity of the market, it’s critical to involve your banker earlier. Commercial banks, like WaFd Bank, want to position their clients to succeed. By involving your lender early, the bank can assist you in penciling out a project that is right for the time, your business and for the foreseeable future.
Your banker is here to help
The bottom line is local banks, like WaFd Bank, want to see the communities they serve thrive. To gain funding for new projects, builders and developers should work closely with their banker to ensure projects are well equipped to attract purchase or lease agreements that generate appropriate cash flow. Together, we will keep greater Boise an idyllic place to live, work and play.
About the author:
A Boise native and banking industry veteran with nearly two decades of commercial banking experience, Bryan Churchill joined WaFd Bank in 2002. He currently serves as Vice President and Senior Relationship Manager in Idaho. Churchill was named a 2020 Excellence in Finance honoree by the Idaho Business Review. MEMBER FDIC, EQUAL HOUSING LENDER, Loans subject to credit approval