Office

Doug Rall, CPA

Today’s
Today s Agenda
• Overview
O i K
Kootenai
t i Cl
Class A
A, B
B, C office
ffi space
• Vacancy y estimates,, asking
g rates,, concessions
• Effect of new construction
• Migration to Idaho
• Employment data
• Summary, forecast, conclusion
Class A Office
Varies by
y locality
y and measured by
y

• Quality of Construction

• Exceptional finish, amenities,

location

• New or built in the past five years

• Modern technology

• Rents $16 - $21 + NNN

• NNN Charges $4- $6 psf

Class B Office
• Often older property
needing updating
pdating

• Lesser quality interior

finishes and amenities

• Designed for lower

operating and maintenance
costs

• Rents $10 - $16 + NNN

• NNN Charges $3 - $5 psf

Class C Office
• Older property with signs of
functional obsolescence

• Often not ADA compliant

• IInefficient
ffi i t mechanical
h i l
systems

• Deferred maintenance

• Rents $6 - $10 + NNN

• NNN Charges $ 2 - $4 psf

Class C Value Added
Upgrade to increase rents and occupancy.
Kootenai Office Vacancy
12

10
nt Vacaant

8
2007
6
2008
Percen

4 2009

0
Post Falls Hayden Rathdrum Coeur d'Alene
Sublease Effective Vacancy
y
Mountain West Bank
2123 N. Government Way
Idaho State Police
615 W. Wilbur
Bio Life Plasma Center
8300 Cornerstone Dr.
Global Credit Union
320 E. Neider
LCT Professional Bldg.
8382 Wayne Dr.
Migration
g from Other States
Drivers License Surrenders in Kootenai County
2000
1800
1600
1400 Arizona
1200 California
Colorado
1000
Montana
800
Nevada
600
Oregon
400 Washington
200
0
2002 2003 2004 2005 2006 2007 2008 2009
Spokane + Kootenai Non-Farm Employment Growth

Much worse than previous

recession: -1% in 2002

Area 2008 2009 2010-F

Spokane
S k
0.5% -
+ 0.3% -3.4%
1%
Kootenai

Unemployment will
remain high in 2010, with
little or no wage
g ggrowth.
Spokane + Kootenai Unemployment Rate

Pessimistic Scenario: Simulated recovery based

on projected changes in national unemployment
11% f
from 2010 ERP
ERP.

9.7%
10%
8.9%
9%
9.0% 7.9%
ployment Raate

8%
8.0% 7.0%
7%
7.0% 6.2%
Unemp

6% 6 5%
6.5%
5.6% 6.0%
5% Optimistic Scenario: Simulated recovery path
4.4% based on 1991 and 2001 recessions, but starting
4% from 9%.

3%
2007 2008 2009 2010 2011 2012 2013 2014
Spokane + Kootenai Household Income, 2008

25% Remember for 2010/11:

(1) 50% make less than 50K Median = $47,000
20%
20%
(2) 75% make less than 75K
17%
ds
Share off Household

15%
12% 12%
12%

10% 9%
7%
5%
5%
2% 3%

0%

2008 Income for Spokane + Kootenai 
Summary of Employment Outlook
• Employment growth will be slow in 2010
and into 2011.
• Unemployment will not return to normal
levels (6.2%) until 2013 or 2014.
• For the next few years median household
income will be approximately
pp y $47K in our
area.
Kootenai Office Summary and Conclusion
Forecast for 2010
Office vacancy will follow unemployment trends
trends.

There will be little speculative

p office construction
during 2010.

L
Leasing
i rates
t will
ill stabilize
t bili byb 2011.
2011

Office vacancy will decrease to acceptable levels

by 2013 (optimistic scenario).

Good property management and strong tenant

relationships are the key to success.
Thank You
For Slides
• Email drall@cbcsr.com
• Visit
Vi it www.cbcsr.com
b