The New Hampshire office market has changed considerably since the crash five years ago - by Laura Nesmith

The New Hampshire office market has come a long way since 2011 when the vacancy rate was over 20% compared to the present 12.3% vacancy rate for Q2 2016.

Back in 2011, we were reporting that the market was mirroring the overall state of the economy, which was highlighted by the lack of physical growth as companies were focused on strengthening their bottom line. Office leasing activity was increasing, but appeared to be driven by tenants looking to “right-size” operations which didn’t lead to increased absorption.

Landlords were reaching deep to aggressively offer tenants lease terms and incentives that were more attractive than competing owners.   Tenants were looking for upgraded space (often with a smaller footprint) at a better price – and getting it. Tenants were also demanding landlords to include space planning services, moving cost reimbursements and other non-lease expenses.

Five years later, the office market landscape has changed considerably.  Although office tenants can still push for attractive deal points, landlords have much more leverage in negotiations, especially if ample parking can be delivered with the space. 

Based on our internal tracking of 400+ office buildings consisting of well over 17 million s/f in New Hampshire, all six tracked submarkets are reporting an uptick in tenant (and buyer) activity level in the office market.

Technically, the Greater Rochester submarket (consisting of only 693,805 s/f of tracked office space) has the lowest vacancy with a 6.15% rate compared to 28.1% in 2011.  The improvement in Greater Rochester over the past five years has been clearly noticeable.

The strongest office submarket is arguably found in Greater Portsmouth. Consisting of nearly 4 million s/f of office space, Greater Portsmouth has a 7.9% vacancy rate compared to a whopping 20.2% in 2011.  The demand for space in Greater Portsmouth (especially at Pease International Tradeport) seems insatiable, which is driving the prevailing office lease rates to the highest peak in New Hampshire.

Also showing marked improvement over the past five years is the Greater Manchester office submarket, which consists of over 6 million s/f of office space with a 13.8% vacancy rate compared to 18.8% in 2011.  The Millyard remains white hot even with the lack of ample on-site parking.  Millyard employers like Southern New Hampshire University (SNHU)and Dyn continue to thrive, eat up space, and implement creative ways to get employees to its doors from remote parking lots.

Conversion of several large properties (Mill West, 875 Elm St., the former Hesser College and 300 Bedford St.) in Greater Manchester that have traditionally been used (primarily or in part) as office space have now transitioned into residential uses, which has actually strengthened the overall office market.

Pockets of new construction/repositioned office space are now being seen, especially in Bedford.

Slight, but overall improvement has been realized in the Greater Concord submarket, consisting of about 1.6 million s/f of office space, with a current vacancy rate of 14.2% compared to 15.4% in 2011.

Brand new Class A office buildings have been brought on the market in downtown Concord, coinciding with the mega downtown improvement project, to the detriment of some Class B office product in the market. The project has had positive impact on demand and was cited as a key motivator for Brady Sullivan Properties in its recent purchase of three office properties downtown.

The Greater Nashua submarket consists of just over 3.5 million s/f of office space with a 14.5% vacancy rate compared to 24.9% in 2011.  Only five years ago the Greater Nashua office market was the most saturated with vacancy for its size, as ample affordable office supply could be found on I-495 and Rte. 128, dispelling any need for companies to move north to find attractive deals. Migration has started to materialize again as the metropolitan Boston office market is one of the strongest in the Country.

The Greater Salem office submarket consists of slightly over 1 million s/f of office space and has a Q2 2016 vacancy rate of 14.5% compared to 15.3% in 2011. New construction is evident in Greater Salem, especially for medical office, but the overall absorption time can be lengthy for office vacancy.

Overall, the recession of the late 2000s is beginning to seem like a distant memory. The slow, steady improvement seen in the New Hampshire office market for the past five years should continue into the foreseeable future.

Laura Nesmith is the research manager at Colliers International | New Hampshire, Manchester, NH.