A 12 percent office-vacancy rate around the Treasure Valley by year's end wouldn't surprise Kristi Larson.
As Larson, the market research manager for commercial real estate firm Thornton Oliver Keller, surveys the market, she sees vacancy rates trending downward for eight straight quarters.
In 2012, Larson says, net office absorption - move-ins minus move-outs - was the best since the market peaked in 2007, pushing the vacancy rate down to a little above 12 percent Valleywide.
That's a big improvement over the fourth quarter of 2010, when the rate topped 16 percent.
According to Thornton Oliver Keller's data, vacancy rates ticked up slightly in the first quarter of this year. That's in line with a nationwide trend of slower absorption that The Wall Street Journal reported early this month. But where The Wall Street Journal saw "continued caution about the economic recovery," Larson saw an anomaly.
She says Thornton Oliver Keller's people expect the decline to continue. "But will it see us back in the single digits by the end of the year? No," she says.
Larson says the price of office space also is recovering, though the Valleywide average of $14.40 per square foot, per year is still about 20 percent less than the 2007 peak. Downtown's price recovery has been stronger, Larson says. After dropping to $15.50 in 2010, the average for all types of Downtown office space is now $16.50.
The first area where office space started to fill up was Downtown, says Matt Palmer, a broker who specializes in office leasings for Boise commercial real estate firm Colliers International.
Palmer and Larson say Downtown always has a lower vacancy rate than most other markets in the Valley. To many businesses, the exposure and prestige is well worth a premium of $2 to $7 per square foot, per year.
"In terms of location, it's the best spot. In terms of traffic, visibility, Class A locations," Palmer says. "Kind of the center of the hub, the universe, for people here."
That doesn't mean Downtown offices are the last to empty out when the economy tanks, he says. When businesses facing uncertain times look to cut costs, the Downtown premium is a place many start, Palmer says.
Suburban areas typically are the last to respond to a positive trend, Palmer says. But even in Eagle, where Colliers reported the office vacancy rate in the 25 percent range as recently as a year ago, vacancy is now about 15 percent, he says.
So far, falling vacancies and rising prices haven't spurred developers to build more office space. One exception is the 8th and Main building Downtown, which is renting for about $27 per square foot, he says. Even that behemoth will add only 240,000 square feet of office space to a Downtown market of more than 5.5 million square feet, Palmer says. About 80 percent of the 8th and Main space is already spoken for.
There's still plenty of office space available, even Downtown, says Tommy Ahlquist, chief operating officer of the Gardner Co., which owns the 8th and Main building. The question is what kind of space businesses want. Upscale space - the niche 8th and Main is meant to fill - can be hard to find, Ahlquist says.
Sven Berg: 377-6275