Boise Office Real Estate Can Learn From Seattle and Bellevue’s Flight to Quality

The office market isn’t dead. But the kind of office space companies want has changed.

That distinction is becoming increasingly clear in Seattle and Bellevue, where newer, higher-quality buildings are attracting tenants while older properties carry much of the vacancy.

For Boise commercial real estate, that trend is worth watching.

According to reporting by Elliott Krivenko of CoStar Analytics, Bellevue remains one of the strongest office districts in the Puget Sound region after a major construction cycle, while downtown Seattle is finally showing signs of stabilization after years of post-pandemic weakness. The original CoStar News article provides the full analysis of both markets.

Boise is obviously much smaller than Seattle or Bellevue. But the lesson coming out of these larger western office markets is relevant here:

Tenants haven’t necessarily stopped wanting offices. They have become much more selective about which offices they will pay for.

Newer Office Buildings Are Winning the Leasing Battle

Bellevue added more than 4 million square feet of office space over the past five years.

That is an enormous amount of new inventory.

Overall availability remains around 21%, according to CoStar, but that number doesn’t tell the whole story.

Much of the available space is concentrated in older properties. Meanwhile, recently completed buildings continue capturing a larger share of tenant demand.

That creates two office markets inside the same submarket.

One consists of modern buildings offering the design, technology, amenities and environment today’s employers want.

The other consists of older properties competing for a smaller pool of tenants.

Seattle is experiencing a similar divide while starting from a much weaker position.

Downtown Seattle availability remains around 35%, but occupancy trends have begun improving. Net absorption has moved closer to neutral after a long period in which companies were giving back significant amounts of space.

Several larger leases in better-quality properties are also helping restore momentum.

The important point isn’t that Seattle’s office problems have disappeared.

They haven’t.

It’s that the strongest properties appear positioned to recover first.

What This Means for the Boise Office Market

Boise does not have millions of square feet of new downtown office towers competing for tenants.

But we are seeing the same basic question play out on a smaller scale:

What makes an employee want to come to the office?

That question has become increasingly important in office leasing.

Before 2020, companies sometimes leased space primarily because they needed desks, conference rooms and a business address.

Today, the office has to work harder.

Companies increasingly look for environments that help recruit employees, bring teams together and make in-person work worthwhile.

That can favor buildings offering features such as strong natural light, modern common areas, efficient floor plans, updated HVAC systems, attractive outdoor areas, nearby restaurants, parking and walkable amenities.

Location matters too.

Downtown Boise, the Boise Bench, Eagle, Meridian and other Treasure Valley office submarkets each offer different advantages. But within those areas, tenants may increasingly separate the best properties from everything else.

That creates a challenge for owners of older office buildings.

Simply lowering the asking rent may not solve the problem.

Older Boise Office Buildings May Need a New Strategy

The Seattle and Bellevue experience should get the attention of Boise landlords.

If tenant demand continues concentrating in better buildings, older properties may eventually have to choose between three strategies:

Improve the building.

Renovations to lobbies, common areas, signage, landscaping, lighting, HVAC systems and tenant amenities can help older properties compete.

Compete aggressively on economics.

Some businesses don’t need Class A finishes. They need functional space at an attractive occupancy cost.

That market isn’t disappearing.

But owners need to understand exactly where their property fits and price it accordingly.

Find another use.

Some older office buildings may eventually make more sense for medical users, education, professional services or other specialized occupancies.

In certain situations, redevelopment or conversion could also become part of the conversation, although the economics and physical limitations of office conversions can make those projects difficult.

The worst strategy may be pretending nothing has changed.

Limited New Construction Could Eventually Help Existing Boise Owners

Seattle offers another lesson.

Its office construction pipeline has essentially shut down, while Bellevue’s major development cycle is nearing its end.

That matters because when developers stop adding competing inventory, the market gets time to work through existing vacancy.

Boise developers face their own version of that calculation.

Higher construction costs, financing expenses and uncertain office demand make speculative office development difficult to justify.

That could ultimately benefit existing buildings.

If relatively little new office inventory is delivered over the next several years, companies that expand or enter the Boise market will have to choose primarily from existing properties.

That doesn’t mean every existing building wins.

The properties best positioned to capture that demand will likely be those offering the strongest combination of location, quality, amenities and economics.

Local Insight: Vacancy Isn’t the Whole Story

When people discuss office real estate today, they tend to focus on one number: vacancy.

I think that can be misleading.

A market can have high overall availability while its best buildings perform reasonably well.

That’s exactly what the Bellevue numbers demonstrate.

The more useful question for Boise commercial real estate owners is:

Which buildings are vacant?

If vacancy is heavily concentrated in older or less competitive properties while renovated and well-located buildings continue signing leases, then the problem isn’t simply a lack of office demand.

It is a mismatch between available inventory and what tenants actually want.

That distinction matters for investors.

Buying an office building simply because the price per square foot looks inexpensive can be dangerous if the property requires significant capital to compete.

At the same time, an older building purchased at the right basis could present an opportunity if renovations, better management or repositioning can move it into a more competitive category.

For tenants, the current environment can create opportunities to negotiate attractive terms, improvement allowances and concessions—particularly in buildings where landlords are motivated to increase occupancy.

For developers, Seattle and Bellevue provide another reason to be cautious about speculative office construction. The strongest opportunity may not always be building something new. Sometimes it is improving what already exists.

The office market isn’t disappearing.

It is sorting itself out.

Seattle and Bellevue are showing what that process can look like in a major western market. Boise office real estate is smaller and has different fundamentals, but the underlying lesson travels well:

Quality matters more than it used to.

The landlords, investors and developers who recognize that shift early will have a better chance of positioning their properties for the next phase of the Boise office market.

Mike Gioioso (joy-OH-so) has for 16+ years been helping companies of all sizes buy, build, and lease perfect places for business in greater Boise, Idaho and beyond.
www.streetsmartidaho.com mike@streetsmartidaho.com 208-209-9166

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