Retail Check In - How Interest Rates are Shaping CRE Decisions

The commercial real estate landscape has entered a new phase, one defined not by rapid swings but by steady recalibration. In the Treasure Valley, that shift is especially visible in the retail sector. Interest rates, construction costs, tenant behavior and investor expectations are all interacting to shape a market that is stabilizing after several years of exceptional growth. 

Drawing from Colliers’ Q3 2025 Retail Market Report, here’s a look at how interest rates, fundamentals and consumer trends are influencing Idaho retail today and what investors and landlords should be watching heading into 2026. 

Retail Market Overview 

After a period of intense expansion across the Treasure Valley, Q3 2025 marked a continued transition toward stabilization.

Key Market Metrics from Q3 2025 

• Overall Vacancy Rate: 4.0% (down quarter-over-quarter) 

• Net Absorption: -98,000 SF (improved from previous quarter) 

• Under Construction: 418,000 SF (up quarter-over-quarter) 

• NNN Asking Lease Rate: $23.01/SF (up quarter-over-quarter) 

• Retail Cap Rates: 6.6% 

Despite negative year-to-date absorption, approximately -472,922 SF through Q3, the region remains fundamentally strong. Low vacancy, rising asking rates in core corridors and population growth continue to support long-term stability. 

Asking Rates  

Asking rates saw a noticeable change from Q2: 

• Ada County: $23.15/SF (up from $22.27) 

• Canyon County: $22.65/SF (down from $23.79) 

Ada’s increase reflects renewed activity and confidence along major corridors such as Eagle Road and downtown Boise. Canyon County’s slight correction follows a period of aggressive rent growth and rapid development. 

Taken together, the trend signals not a weakening market, but a return to measured, fundamentals-based pricing. 

Vacancy & Absorption 

Vacancy improved across the region, especially in Canyon County, which saw rates drop from 6.9% to 5% in a single quarter. Ada County edged up slightly to 3.6%, still well below national averages.  

Negative year-to-date absorption represents a natural easing after the post-pandemic growth sprint.  

Low vacancy and a modest rate growth brings about a market settling into equilibrium, not distress. 

How Interest Rates Are Directly Influencing CRE Decisions 

Interest rates will continue to play a defining role in how investors and tenants make decisions through 2026. While the Federal Reserve’s 0.25% rate cut in late 2025 drew attention, the CRE impacts are not as straightforward. 

Interest Rates vs. Borrowing Costs 

Commercial loans are tied primarily to long-term Treasury yields, not to the Fed funds rate. 

• A Fed cut does not automatically result in lower financing costs. 

• If Treasury yields rise, borrowing becomes more expensive, even in a rate-cutting cycle. 

 

Cap Rates Adjust Slowly 

The relationship between interest rates and cap rates is real but not instant. 

• Cap rates typically lag changes in borrowing costs. 

• Institutional capital deployment can influence cap rates before market data shows movement. 

In Idaho, the retail cap rate of 6.6% reflects this slow-moving adjustment. 

Economic Uncertainty 

Another key variable shaping retail decisions is the broader economic climate. While not guaranteed, recession risk remains part of calculations. 

Factors such as tariffs, rising input costs and employment shifts could complicate the Fed’s path, keeping inflation sticky and limiting aggressive rate cuts. 

Which Retail Types Will Stand Strongest 

Not all retail behaves the same in uncertain economic environments. The most resilient tenants typically include: 

1. Necessity-Based Retail 

Grocery stores, essentials and pharmacies - consumers prioritize needs over wants. 

2. Discount Retailers 

Value-focused chains often see increased traffic when household budgets tighten. 

3. Luxury Retail 

Higher-income consumers tend to maintain spending, making luxury retail more insulated. 

Most Vulnerable Assets 

In today’s market, tenant strength is increasingly judged store by store, not just category by category. A grocery-anchored center with strong regional retailers may outperform, while a center anchored by a struggling big-box chain could face real headwinds. 

Development Outlook 

With borrowing costs still historically high and construction materials elevated, retail development in 2026 is expected to remain subdued. Mixed-use projects and infill developments will continue, but large-scale ground-up retail will likely stay limited. 

This constrained pipeline keeps: 

• Occupancy rates healthy 

• Tenants competing for quality space 

• Landlords retaining leverage in negotiations 

However, if a recession does materialize, some backfilling will be necessary, making tenant communication and proactive leasing strategies essential. 

Looking Ahead 

2026 may bring volatility, but it also brings opportunity. The strongest outcomes will go to owners and investors who: 

• Understand the interplay between interest rates, cap rates and borrowing costs 

• Evaluate tenant resilience beyond categories and into individual financial strength 

• Remain flexible and ready to act as economic conditions evolve 

Idaho’s retail market continues to be shaped by strong population growth, healthy labor fundamentals and tenant demand, even amid shifting capital markets.