The state of New Hampshire’s commercial market

The market is strong, but for how long?


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More than a month into the Trump presidency and the lights are still on! What is most interesting is the markets are still strong, despite the tweets. However, we are only one month into a four-year term! Hopefully, the founders’ checks and balances will kick in and keep the ship of state on a relatively steady course.

We continue to be busy, although there is some increasing anxiety about how long the market will stay so strong. As we have outlined before, there are five sectors in the asset class of commercial real estate. The categories are multifamily, industrial/high-bay (warehouse and manufacturing), office, retail and commercial (mixed uses, including hospitality).

We are hearing that multifamily may have peaked in 2016. New construction has been strong for several years adding to supply. Rents have softened in the last quarter. This is not universal (New Hampshire rents are still strong), but the big Class A markets may be overbuilt, resulting in rents capping out, or even receding.

Office markets are mixed. Newer, compliant space is still in demand, older buildings remain un-leased. Many of these buildings will not lease as office in their current condition. Many will change use. Given that rental and condominium demand is still strong locally, conversion to residential use is a trend.

We are marketing an office building that has a value of just more than $400,000 as an office building, but could be worth 15 to 20 percent more if converted to residential condominiums.

Retail space is soft. Sears and JCPenney are holding on by a thread. Online sales were up 23 percent on Black Friday. Amazon, et al. are finally gaining traction. This indicates shrinkage in footprints. New is always the trend in retail, but with smaller footprints.

We are reading about small boutique hotels, but some chain brands are still being built. Restaurants are up and down (as usual). Americans are eating out more and more. But it is a tough business, and even a slight downturn will negatively impact many operations.

So that leaves high-bay – industrial, manufacturing, assembly, flex/R&D and warehouse/distribution. This remains the strongest sector locally. We have more than a dozen requirements for 10,000 square feet to 40,000 square feet. The product supply is not there. Alas, current construction costs are up over 20 percent in the past one to two years. We have one client looking at his ninth property option in the past 12 months. So 2017 seems to be off to a solid start. While storm clouds remain on the far horizon, no one is calling for stormy conditions just yet.

A recent report from the Counselors of Real Estate (of which I am one) listed 10 trends for commercial real estate. Among them is that the U.S. remains a safe harbor, still attracting foreign investment capital. Baby Boomers are retiring at the rate of 10,000 per day, a demographic shift that will drive residential real estate for quite a while (I am one of those too!).

The middle class is shrinking, some would say disappearing. Income has fallen 5 percent between 2000 and 2014 and median wealth has declined 28 percent since the Great Recession. Thus we are seeing more Walmart and Dollar Generals, while Sears and Macy's contract. New sharing/virtual economic trends such as Airbnb, Uber and bicycle-sharing are getting real traction. There are others, but these are the headliners.

Lastly, with interest rates artificially suppressed for over eight years, there is a sense that they have to rise. In real estate, rising interest rates translate into lower prices/value. Owners of commercial properties love their current returns but are wondering if now is the time to “sell high.”

Bill Norton, president of Norton Asset Management and principal of Harrington & Reeves, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA). He can be reached at wbn@nortonnewengland.com.

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