Renewal rush

Low office vacancy in downtown Boise inspires some businesses to renew leases or secure expansion space sooner rather than later.

“In some cases they will come to us long before the stated notice period,” said Liz Fitzgerald, property manager in Boise with Unico Properties, which owns the 19-floor U.S. Bank Plaza.
Tenants in U.S. Bank Plaza must notify Unico of their plans to stay or go within six, nine or 12 months of the lease’s expiration date, she said.
But several tenants in the past year approached Unico sooner, in some cases 18 months or even two to three years before their current lease expires, Fitzgerald said. “Part of that could be a function of tenants’ need to expand.”
The Miller Purnell & Harr law firm recently expanded in U.S. Bank Plaza, she said. So did law firm Holland & Hart.
“We think downtown is still strong, and Class-A office space for any larger-size space is hard to find,” said Holland & Hart partner Fred Mack.
Holland & Hart added space and extended its lease. “The timing was predicated in part on the fact that we could get contiguous floors without a negative impact on the term and rent rate,” Mack said.
Fitzgerald said the tenant typically leases expansion space under the existing lease terms, conditions and rent schedule. Terms and conditions such as renewal options and first rights of refusal on adjacent space remain. Renewal rent rates, and any scheduled increases, are in line with rates for the prior lease term, she said.
“We certainly want to make it worth their while to stay,” she said. Vacancy in U.S. Bank Plaza has been 5 percent or lower over the past two years.
Recent transactions in the 256,000-square-foot building include four extension / expansion leases in the past 18 months, two renewals in the past year, and four new tenants in the past year, she said. Among new tenants, three are new to the market.
Unico in the last few years has been remodeling parts of U.S. Bank Plaza to serve existing tenants and keep the building competitive with other downtown buildings, Fitzgerald said. Major renovations to the entrance and lobby concluded recently.
Bill Beck, who owns Tenant Realty Advisors in Boise, agreed with Mack’s assessment that downtown isn’t over-supplied with large office spaces available.
Beck recently represented Microsoft Corp.’s Boise operation in its lease of 34,000 square feet in the Idaho Independent Bank office building at Fourth at Front streets, he said.
“Microsoft was pleased with the space that they leased, but was surprised that there weren’t more options downtown,” he said. Officials with Microsoft’s Boise operation – now based at Ninth and Miller streets downtown - could not be reached.
Beck said he is working with a stock brokerage that wants 5,000 to 6,000 square feet of high-visibility space downtown, “and that has not been an easy assignment.” He also is representing a business that has started an early search for 12,000 square feet of downtown not needed until late 2009. He recently represented the Mexican Consulate, which plans to occupy 6,400 square feet in Washington Group Plaza on the east end of downtown.
Rents will increase downtown if a lack of sizable office spaces persists, he said.
A slower economy has some office tenants taking a wait-and-see approach to decisions about their office space, said Peter Oliver, partner in Idaho Independent Bank Building developer Brighton Corp., Boise. Brighton opened the six-story building last July - and was fortunate to start construction before costs for many materials spiked, he said.
Downtown is healthy, Oliver said.
“The market is healthy, but it’s also more expensive to build,” he said. “Most tenants in Boise are still rent-sensitive.”
Elsewhere in downtown Boise, Boise Plaza property manager Scott Schoenherr of building owner Rafanelli & Nahas said downtown office rents strengthened from one to two years ago, Banner Bank Building developer Gary Christensen of Christensen Corp. said three tenants recently expanded, and Oppenheimer Cos. Leasing Director Melodie Jones said the company has no space available in One Capital Center and just 1,400 square feet available in Wells Fargo Center.
A couple of office tenants in the Old Boise district renewed leases, but office and retail users remain cautious overall, General Manager Clay Carley said.
Marc Stimpson, Brokerage Support Director for Thornton Oliver Keller Commercial Real Estate, said downtown Boise office vacancy stood at 6.2 percent at the end of March compared to 7 percent a year earlier. He expects vacancy in the 5 percent range for April 2008, “which is remarkable given current economic concerns.”
Many office market observers say 8 to 10 percent vacancy reflects a balance between supply and demand.