SCHNEIDMILLER REALTY

Kootenai County Commercial Market Review & Forecast

2008

Activity, Trends & Indicators

1

Survey
Table of Contents
s u rv e y m e t h o d o lo gy office r e ta i l land / new c o n s t r u c ti o n m u lti - fa m i ly industrial sources 1 2 3

Methodology
4 5 6 7

Coldwell Banker Commercial Schneidmiller Realty is pleased to present a Kootenai County Commercial Real Estate Market Report. Our purpose is to present valuable information for investors and building owners who are affected by our evolving market. We have collected statistics from many different sources and compiled the data in a concise manner. This report focuses on the most populous places within Kootenai County, namely Coeur d’Alene (34,785), Post Falls (17,028), Hayden (9,361), Rathdrum (4,891), and Dalton Gardens (2,260). Our analysis attempts to give a definitive study of past trends and future indicators that both have and will characterize our market. New data from a Kootenai County survey by Auble, Jolicoeur & Gentry and Coldwell Banker Commercial Schneidmiller Realty gives insight into our market that was not possible before. The 2007 survey sampling encompassed over 8.5 million square feet of commercial buildings which equates to 32% of the commercial buildings identified in our market. Going forward, we will continue with a semi-annual survey that will give us the ability to track historical trends in vacancy rates, rental rates and absorption rates. The data in this report largely reflects the continuation of a strong market for commercial real estate activity in Kootenai County. Low interest rates and economic growth have contributed to a relatively stable commercial market. At Coldwell Banker Commercial Schneidmiller Realty, we appreciate the opportunity to work with our valued clients and build relationships based on superior service. Each member of our team strives to meet your needs and help you fulfill your goals. We thank you for your business.

Phone: (208) 765-4300 Toll Free: (800) 829-2555 435 W. Hanley Ave. Coeur d’Alene, ID 83815 Fax: (208) 765-9150 www.nwinvest.com

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review The office sector of our market claimed the lowest vacancy rate across all sectors surveyed. Overall vacancy is at 2.37% with over 1.5 million square feet surveyed. Office tenants have trended towards fewer turnovers and a greater amount of lease renewals. Lessees have found it clearly more cost effective to renew or expand in their current location than move to a new space. Rising tenant improvement costs have contributed to the increased level of renewals. In addition, rising land prices and construction costs are driving up asking rents on new projects. Existing buildings have continued to increase rents to compensate for higher operating costs. However, rents at existing buildings are still significantly more economical than new office space entering the market. One major new project to note is the recently completed 46,300 square foot Riverview Tower on Northwest Boulevard. Parkwood Business Properties is offering space in this project at an annual rate of $18/sq. ft. net. As of the end of February 2008, they have successfully leased 90% of available lease space in this property. forecast Year end 2007 unemployment for Kootenai County remained remarkably low at 3.5%, significantly better than the 4.8% national year-end unemployment rate. Job growth and unemployment trends are a key indicator of future office space needs. These positive factors typically foreshadow upward movement in office leasing activity as job growth and business expansion continues. Expect to see increased build-to-suit activity in the office market as rising land and building prices make speculative construction cost-prohibitive, and developers risk ongoing holding expenses. The “credit-crunch” will remain a pervasive problem that could limit sales of office condos and new office development. Completion of the federal courthouse should keep market conditions stable throughout the year. Completion of the federal courthouse in North Coeur d’Alene will drive development of office space for tenants in associated professions. A combination of modest growth and minimal planned office construction should keep market conditions stable throughout the year.
60,000 Total non-farm payroll jobs 50,000 40,000 30,000 20,000 10,000 0

Office
2000 2001 2002 2003 2004 2005 2006 2007
o f f i c e s u rv e y BreaKdown

2

Ko o te n a i c o u n t y n o n fa r m Pay r o ll J o B s

1,000,000 sf
= % vacant 2.37%

800,000 sf 600,000 sf 400,000 sf 200,000 sf 0
2.06%

1, 523,368 Total SF Available

1.71%

5.79% 0%

Post Falls Office

Hayden Office

Rathdrum Office

Dalton Office

Coeur d’Alene Office

SCHNEIDMILLER REALTY

3

ta x a B le sa le s

Retail
+7.9

= % change
$1 bil
+6

review 2007 marked the completion of numerous retail centers across Kootenai County. Major project completions included the opening of Cabela’s near Stateline, Kohl’s just south of Prairie Avenue on Highway 95, and Sportsman’s Warehouse adjacent to Costco. Retail vacancy was measured at 8.1%, with over 3.8 million square feet surveyed. The highest vacancy rate was measured in Rathdrum with 12.95% vacant. The rapid development of strip centers throughout the county has outpaced retail absorption. Small users have numerous options forcing landlords of Class B properties to attract tenants with move-in specials and aggressive tenant improvement allowances. Taxable sales attributed to Kootenai County in 2007 rose to over $1.2 billion, an increase of 7.91% over the previous year. National retailers continue to expand to meet the needs of the growing population and economic base. forecast Phase II of the highly successful Sportsman’s Warehouse strip centers is scheduled for completion in summer of 2008. Tenants in Phase I have quickly realized the benefits of Costco and Sportsman’s Warehouse serving as shadow anchors. The Pointe at Post Falls has attracted major national retailers. The project has slated over 800,000 square feet of retail to bigbox, hotel, theater, restaurants, fast food and inline space. As of the end of February 2008, there are no signed contracts, but negotiations are underway with Wal-Mart, Lowe’s and Sam’s Club. A large hospitality component is also expected in the near future.

$1,034,826,443

$1,064,289,258

$1,128,137,116

$935,720,163

$923,395,375

$600 mil

$300 mil

0

2001 2002 2003 2004 2005 2006

$994,007,517

-1.3

2007

r e ta i l B r e a K d o w n

2,000,000 sf 1,500,000 sf 1,000,000 sf 500,000 sf 0

= % vacant

$1,217,414,503
0% Dalton Retail

$900 mil

+7.7

+4.1

+2.9

3,866,946 Total SF Available
12.74%

3.46%

8.56% 12.95%

Post Falls Retail

Hayden Retail

Rathdrum Retail

Coeur d’Alene Retail

Barnes & Noble is set to open July 2008 in the Village at Riverstone. Other planned tenants include Red Robin and Ironwood Athletic Club. In first quarter 2009, nine undisclosed national retailers are scheduled to open. Ongoing softness in the housing market will continue to affect retail absorption. Inevitably, if consumer spending continues to slump and unemployment increases, the national retail market will further soften. Kootenai County’s retail market still remains comparatively healthy, particularly in the high-end retail sector. However, a softening would likely send vacancy rates higher and exert pressure on landlords to reduce asking rental rates. Owners and developers of retail real estate are well aware of the challenges facing retailers. Nonetheless, local conditions still remain relatively robust compared to the national situation. Kootenai County’s close proximity to Canada could also aid the retail market as tourism spending should be bolstered by the weak United States dollar.

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review New construction in the area has slowed alongside the national housing market. Lots platted in Kootenai County decreased from 2,462 in 2006 to 1,362 in 2007. The largest decreases were seen B u i l d i n g P e r m it in Rathdrum and unincorporated areas throughout Kootenai County. While the s u m m a ry 2 0 07 number of lots platted decreased, major developers positioned for future growth. A number of significant land acquisitions Permits va l u e were made along the Highway 41 Corridor, North Hayden area, Kootenai Co. total and Cabela’s development area. Over the past decade, single-family home construction throughout the region has been stimulated by population influx to Kootenai County from neighboring states. One of the best indicators for tracking buyer relocation trends is the origin of surrendered driver’s licenses. The Idaho Transportation Department has tracked the origin of surrendered licenses since 1997. The number of surrendered licenses from California ballooned from 834 in 2001 to 1,383 in 2006. The top two sources of immigration for Kootenai County are California and Washington respectively. This data shows an increased attraction to Idaho from across the Western region. forecast Census Bureau statistics project that by 2030, Idaho population will increase to over 2 million residents. This reflects a 52% increase over 2000 population, and a 45% faster growth rate than the national average. Idaho is predicted to need an additional 390,000 new housing units to absorb the population influx. An increase in housing units goes in step with an increase in jobs, retail stores and office space. Unquestionably, Kootenai County is a highly desirable destination that will continue to be viewed as a market with great investment opportunities.
lo t s P l at te d lo t s P l at te d i n Ko o te n a i c o. Residential 1848 Commercial 336 Multi-Family 39 Total .............................. 2223
Post Falls

Land & New Construction
unit

4

$305,338,467 $212,724,424 $38,346,902 $556,409,793 $53,357,274 $50,594,240 $11,848,602 $115,800,116 $84,674,385 $128,479,543 $22,426,849 $235,580,777 $15,119,287 $3,513,772 $0 $18,633,059 $32,222,090 $16,835,416 $4,071,451 $53,128,957 $119,965,431 $13,301,453 $0 $133,266,884

1,396 n/a 377 1,773 364 n/a 150 784 523 n/a 211 734 84 n/a 0 84 130 n/a 16 146 295 n/a 0 295

Residential 295 Commercial 70 Multi-Family 17 Total ................................ 382
CoeuR d’alene

Residential 477 Commercial 140 Multi-Family 16 Total ................................ 633
RathdRuM

Residential 111 Commercial 11 Multi-Family 0 Total ................................ 122
hayden

Residential 184 Commercial 51 Multi-Family 6 Total ................................ 259
Kootenai Co. uninC.

2000 2001 2002

Year

2003 2004 2005 2006 2007

Coeur d’Alene Hayden Post Falls Rathdrum Spirit Lake Dalton Gardens County

Residential 781 Commercial 64 Multi-Family 0 Total ................................ 845

Total Lots 0

500

1000 1500 2000 2500 3000 3500

SCHNEIDMILLER REALTY

5
h i s t o r i ca l a Pa r t m e n t vaca n c i e s
Overall Vacancy Rate
Actual Rent Per Rentable Square Foot
$0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0.0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0.0
5.2% 3/15 3.8% 6/15 3.2% 9/15 4.6% 12/15 6.9% 3/15 9% 6/15 6.4% 9/15 6.5% 12/15 4.5% 3/15 4.3% 6/15 2.5% 9/15 3.8% 12/15 4.8% 3/15 5.6% 6/15 5.2% 9/15 3.2% 12/15 4% 3/15 2.9% 6/15 3.8% 9/15 5.6% 12/15

2000

review Sales volume of multi-family product in Kootenai County was off 57% as compared to 2006 ($35 million in 2007 vs. $15 million in 2006). Values declined approximately 11% from 2006 levels as the average sale price fell from $345,000 to $306,000 in the multi-family arena. Unsold stock remains higher than previous years, especially in the condo market. The good news is Kootenai County apartments achieved an average rent of $0.77 per net square foot in 2007. Overall, apartment vacancy decreased to 4.3% from 5.7 % the previous year. Remarkably, studio apartments (a small segment in our market) recorded no vacancies in the final 2007 apartment survey conducted. Some newer units with exceptional amenities or superior locations are achieving rent of over $1.00 per net square foot. Affordability remains a key concern for Kootenai County. A household is considered cost-burdened if annual rental rates exceed 30% of a household’s yearly gross income. Presently, one in seven US households is severely housing cost-burdened. Kootenai County’s affordability has declined over the past decade and is now less affordable than neighboring Spokane County. The growing lowincome rental population is driving an increase in demand for affordable housing.

Multi-Family

2001

2002

2004

forecast Values will continue to be soft, presenting opportunities for liquid buyers. Vacancy rates will decline to levels not seen in years as prospective homeowners sit on the sidelines waiting for the housing market to hit bottom. Additionally, the recent melt-down in the “sub-prime” mortgage arena has caused tightening of underwriting standards for new home loans, thereby closing the door on many first time home buyers who are currently renting. The result is lower vacancy rates and increased rents for apartment housing.

Ko o te n a i c o u n t y a Pa r t m e n t m a r K e t s u rv e y s e P te m B e r 2 0 07
STudio 1 Bdrm 2 Bdrm 1 BATh 2 Bdrm 2 BATh 3 Bedroom 2 BATh oTher All

2005
$0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0.0 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 0.0
4.2% 3/15 1.6% 6/15 4.3% 9/15 6.9% N/A 3.1% 3/15 7.2% 6/15 5.7% 9/15 6.9% 12/15

Market Vacancy Avg. Rent Rent / NRSF Units Surveyed Complexes

0.0% $408 $0.850 52 2

4.5% $573 $0.841 403 12

3.2% $651 $0.761 526 13

2.8% $747 $0.708 325 9

16.5% $895 $0.795 103 4

0.0% $926 $0.643 24 2

4.3% $664 $0.772 1433 14

2006

2007

SCHNEIDMILLER REALTY

review Job growth in Kootenai County manufacturing employment has driven high demand for this product type. Of the 2,215,420 square feet surveyed in Kootenai County, only 87,869 square feet is vacant (3.97%). The majority of the vacant space was found in smaller buildings with fewer than 3,000 square feet. These vacancies are due to substantial construction of small spaces over the last several years. Even with low vacancy, leasing rates have resisted upward movement and remain fairly static. Tepid rate trends have failed to keep pace with increased construction costs, which in-turn, have kept developers from building large speculative industrial space. Over the past year, low interest rates and favorable owner-occupied financing have converted several leased industrial spaces to owner-user space. This shift could make room for additional lease space in the near future.

Industrial

6

i n d u s t r i a l vaca n c i e s Ko o te n a i c o.

Industrial land rates in Hayden have edged higher than Post Falls. In Riverbend Commerce Park, offering rates are $4.00 to $4.50/sq. ft. Light industrial lots in EXPO at Post Falls range between $5.00 and $8.00/sq. ft for half to one-acre lots. Industrial land prices are slightly higher in parts of Kootenai County than Spokane County, with some 5000 asking prices above $10.00/sq. ft.
# Employed

m a n u fac t u r i n g e m P loy m e n t Ko o te n a i c o.
= Mfg. Jobs

forecast Only a few new projects are proposed at this time. The Riverbend Commerce Park is currently finishing up two buildings with a combined total of approximately 87,000 square feet. The Park has a 43,000 square foot building slated for construction in the near future, but no formal decision has yet been made. Riverbend Commerce Park is moving forward on Phase 4 plans, with 24 lots ranging from 1.0 to 1.5 acres, of which several lots are currently pending sales.

4500

4000

3500

2000 2001 2002 2003 2004 2005 2006 2007

Businesses looking for large spaces will need to consider build-to-suit options due to the lack of supply. The aforementioned static rental rates should begin trending upward to keep up with construction costs. The manufacturing employment underpinnings of the industrial market remain positive. Furthermore, low vacancy rates and strong demand will create a healthy industrial market in 2008.

SCHNEIDMILLER REALTY

Sources

Fall 2007 Spokane/Kootenai County Market Survey – Auble, Jolicoeur & Gentry/Coldwell Banker Commercial Schneidmiller Realty • 1990, 2000 Census & Housing Data - U.S. Census Bureau • Population and Housing Projections - U.S. Census Bureau • Unemployment Data - U.S. Bureau of Labor Statistics • Idaho Employment/Unemployment Data – Idaho Department of Labor • County and Zip Business Patterns - U.S. Census Bureau • Building Permits Survey - U.S. Census Bureau • Coeur d’Alene Multiple Listing Service Data • Cities of: Coeur d’Alene, Post Falls, Hayden and Rathdrum. © 2008 Coldwell Banker Commercial Schneidmiller Realty. All rights reserved. The information contained in this report has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. Readers are encouraged to verify the data and consult their professional advisors prior to acting on any of the material contained in this report. acKnowledgment Coldwell Banker Commercial would like to thank everyone for their participation, especially our dedicated clients. We appreciate you! We thank Gary Schneidmiller for the vision to pursue this venture. Thank you Mike King for your hours of design, execution, and review in helping make this market report a reality. We thank Auble, Jolicoeur & Gentry for their tireless efforts in securing data for our report, as well as the future statistical reporting that we will all benefit from. We give a very special thank you to for their diligent dedication and excellence in delivering this creative presentation.