New Hampshire Seacoast 2017 office and industrial market outlook - by Kent White and Christian Stallkamp

Kent White, CBRE|Portsmouth

Seacoast office market by Kent White. 2016 has seen another year of positive absorption, with Seacoast office vacancy rates declining to 8.3%. This is the seventh consecutive year of decreasing vacancy rates from the historically high level of 20.3% in 2009. Unlike previous years, when new construction added much-needed available space to the market, the Seacoast did not see any new speculative construction in 2016. This contributed to driving down the vacancy rate even further and putting more pressure on the market.

Although there are submarkets within the Seacoast that continue to be stagnant, the overall market is extremely healthy. To illustrate this point, one can look at the Pease Tradeport, which is considered to be the economic engine of the Seacoast. The vacancy rate decreased from 6.9% at the end of 2015 to 4.7% in 4Q 2016. Although there are rumors of various new construction projects, only one 30,000 s/f project at 85 New Hampshire Ave. will be an available option in 2017.

The Seacoast office market should remain stable in 2017. Portsmouth/Pease will continue to be the engine of the Seacoast, however, with limited vacancy in existing inventory and minimal new construction planned for 2017, companies that want to be in Portsmouth may be forced to consider surrounding areas. This was the case when Planet Fitness expanded and will relocate their corporate headquarters from Portsmouth to Hampton in 2017.

Landlords and tenants should consider the following as they plan for 2017 and beyond: Tenants • Tenants will continue to see limited options, increasing lease rates and fewer landlord concessions. • It is important for tenants to understand their budget. Many tenants may want to lease space in Portsmouth/Pease, but the cost savings can be substantial if they consider surrounding communities. • Tenants should start looking early. With so few options, a tenant may be forced into making a poor decision if they wait too long. • Hire a commercial broker to represent the company. Having an experienced broker on call will help prospective tenants navigate the competitive market.

Landlords • With vacancy rates down and demand high, rents will continue to increase. This is an excellent time for owners to add value to their portfolio. • It is a landlord’s market. The days of landlords offering free rent periods, generous tenant improvement (TI) allowances and other concessions are over. • Consider selling. The appetite for investment properties is at an all-time high in the Seacoast. If a building is more than 70% occupied, it is a great time to consider putting it on the market. • Refinance. Commercial interest rates are still at all-time lows, but it is predicted rates will increase in 2017, so now is the time for landlords to refinance their properties.

Christian Stallkamp, CBRE|Portsmouth

Seacoast industrial market by Christian Stallkamp. For industrial users of all sizes, 2016s lack of quality industrial product continued to edge industrial rents and sale prices higher in the Seacoast market. A good economic bellwether for the Seacoast can be seen at an industrial/flex complex in Greenland that is comprised of 44 units, with sizes ranging from 1,200–2,400 s/f. On the market today there have been limited to no spaces available, a trend that has been consistent throughout 2016. Five years ago, a small industrial user could easily have had close to five or six options. This limited supply shows the economy’s strength in the Seacoast and the growth and confidence of small businesses.

Other key factors affecting the market are the repositioning of some of the larger industrial buildings and the lack of available developable land. In response to these market conditions, the Seacoast has seen growing industrial users looking at new construction or expanding their existing footprints.

The Seacoast industrial market is comprised of approximately 16.5 million s/f, which is very small when compared to a market such as Boston’s approximately 143 million s/f. That means when larger buildings are repositioned in this market, the change in metrics stands out. One repositioning trend that dramatically affected traditional industrial inventory was the repurposing of industrial warehouses into self-storage facilities.

Layered on top of the need for new construction is the lack of available industrial land in the Seacoast market. One example of how far the Seacoast market has filled in over the course of time can be seen at the Pease International Tradeport in Portsmouth/Newington. This former U.S. Air Force Base is home to over 4 million s/f, with only two available lots remaining for development (those without existing options). For pricing data points outside of Portsmouth, but still in the Seacoast, historical sale prices would typically be $55–65 per s/f. In 2016, the price range hit $74 per s/f up to $94 per s/f for an older 46,000 s/f industrial building with I-95 visibility.

In 2017, we expect industrial vacancy to continue to be tight, with continued pricing increases occurring as a reflection of the lack of product. This trend should continue as long as product remains in short supply in a low interest rate environment. Submarkets outside Portsmouth, such as Exeter, Dover, Rochester and Epping, should see more ground-up development due to more available land with lower acquisition costs.

To learn more about the state of the commercial real estate market in the Seacoast and surrounding communities – look out for CBRE’s 2017 New Hampshire Market Outlook – available to download soon: www.cbre.com/nhmarketoutlook

Kent White is a partner and principal broker and Christian Stallkamp is a senior broker at CBRE|Portsmouth, N.H.