Industrial buildings market diversifies

Brandon and Cody Caldwell had a dream. Both have been avid outdoor enthusiasts: bikers, hikers and skaters.

“We wanted to start the first BMX, skateboarding and snowboard specialty shop,” said Cody, the younger of the two men. “But we wanted to do more than that, we wanted a place where we could build an indoor bike and skate park.”
The weather is a factor in skating and biking in southwest Idaho, but an indoor park allows activity even when it’s too hot, rainy, snowy or cold.
But the brothers, originally from Boise, were frustrated further when they actually started a months-long search for a place to house an indoor bike and skate park. The supply of available warehouse buildings tightened, and rents jumped.
Brandon, 37, and Cody, 29, put the indoor park on hold and instead focused on increasing business volume at their Boise Independent Bike and Skate shop – better known as BIBS. They moved the Meridian shop in the past year, tripling total space.
Boise-area industrial property developers and brokers say in the past few years fewer large, single-occupant industrial and warehouse buildings have been constructed on speculation, causing a shortage for a demand that still exists.
“It’s still a dream of my brother’s,” Cody said. “It’s definitely not something we’re giving up.”
Current trends include multi-tenant configurations, and space layouts that can accommodate office or showroom space. These designs can broaden the field of potential tenants and command the higher rents necessary in light of higher land and materials costs, sources said.
Industrial property broker Jerry Van Engen of Thornton Oliver Keller in Boise said, “We rarely see a building built today on spec’ – that is designed only for a single tenant, unless it’s a specific building for a specific use.”
Jabil and Zilog are examples of single-user buildings that were difficult to re-lease or sell after they became vacant, he said.
“Flexibility is the key,” he said of construction on new warehouses.
In addition, land purchases for industrial development have slowed, he said. Developers continue to construct buildings to suit pre-committed occupants, particularly if the developer has held the land for several years at a price lower than he or she would pay today, he said.
Gary Bates of Michener Investments said in the past couple of years, many older industrial buildings were purchased as an alternative to paying more to build. This drove vacancy rates down, though recently vacancy is rising as companies that serve the housing industry downsize, he said.
Another way to deal with high land cost is to build with flexibility in mind, Bates said.
He markets Steelwood Condos, an office-warehouse “flex” complex in west Boise. Buyers pay competitive rates for warehouse space and below-market rates for office space if a second-story office is added, he said.
This is how the Caldwell brothers envision Boise Independent Bike and Skate long-term, Cody Caldwell said. They would move the store into the building that houses the park.
The Boise-area industrial market’s small size encourages developers and lenders to stay conservative, so the market has stayed healthy, industrial property broker Gary Buentgen of Intermountain Commercial Real Estate, Boise, said. He has worked 16 years in the Boise area. Earlier, he worked for 14 years in southern California.
He does not see developers purchasing Ada County land for speculative construction, he said.
“When I got here in the 1990s, we had a lot of cheap land in Ada County. We don’t anymore,” Buentgen said. Speculative construction of industrial and warehouse space never was a big trend in the Boise area, he said.
“We’re seeing vacancy levels going up, which takes away our ability to price the warehousing at an economic cost per square foot,” said Meridian-based industrial developer and builder Ron Van Auker.
Recent construction cost increases include 34 percent since January 1 for some steel products, and 5 percent increases in January and June (scheduled) for certain insulation and roofing products, he said. Permitting fees and financing costs also are on the rise.
Land prices per square foot in the Boise area exceed those found in Denver, Portland, Seattle and Salt Lake City, Van Auker said.
“The only area of elasticity we have is the cost of the ground,” he said. “In some instances the ground has gone down, but not enough.”
Van Auker is faced with finding occupants financially strong enough to pay necessary prices, and construct new buildings based on demand, he said.
Recently he constructed several buildings to accommodate existing customers who are expanding, and speculative buildings that attracted tenants because the buildings were ready to occupy quickly, he said.