‘Caution and conversion’ was the commercial real estate theme in 2025

Recent reports show that the conversion of office space to residential units drove the commercial market last year

When it comes to commercial office space in 2025, smaller was better, according to a new report.

The other component that drove the commercial market last year, according to a report from Colliers, was the conversion of office space to residential units.

“Strong small-space demand and office-to-residential conversions shaped a year of transition with vacancy expected to remain stable but rental rate direction uncertain entering 2026,” wrote Kristie Russell, research director for Colliers of New Hampshire and Maine in her fourth quarter 2025 report.

In a companion report dealing with manufacturing/industrial/warehouse space, Russell said development activity was limited throughout 2025 in what she described as challenging market conditions.

“Several industrial lots approved for warehouse projects have been on the market for a while, with high construction costs making deals difficult to justify financially,” she wrote in her Q4 2025 report about the industrial sector.

According to Russell, New Hampshire’s office market was marked by “caution and conversion.”

Businesses were looking for smaller spaces to downsize or consolidate, according to Russell. “Companies took a cautious approach to real estate decisions, focusing on lease renewals and strategic relocations rather than major expansion plans,” she said.

Meanwhile, she noted, the state’s residential real estate market has continued to boom, having a direct bearing on office space.

“Strong housing demand and attractive development opportunities are changing how developers think about commercial properties across New Hampshire,” she said, citing the proposed conversion of the former Liberty Mutual property in Dover as an example.

Property developer Brady Sullivan of Manchester bought the 594,945-square-foot site for $16.3 million with plans for a mixed-use development.

Dover Planning Board documents show a three-phase proposal: Phase 1 would convert the 350,000-square-foot building at 150 Liberty Way into a mixed-use building with 37,000 square feet of commercial space and 245 residential apartments with a mix of one-, two- and three-bedroom apartments. That plan is currently before the board.

Phase 2 would entail converting existing office space in the building at 100 Liberty Way into additional residential units. Phase 3 proposes constructing a new, mixed-use building.

“Strong residential demand combined with businesses’ cautious approach to office space has created conditions where converting certain properties offers attractive returns for owners reassessing their investments,” said Russell.

According to Russell, the repurposing of properties in downtown Manchester and Portsmouth is further evidence of the office market’s response to changing conditions.

Office building vacancy rates varied by region, according to Russell’s report, which looks at submarkets around Concord, Manchester, Nashua, Salem, Portsmouth and Dover. Overall in New Hampshire, it stands at 13.8%.

The Dover submarket in Q4 2025 had the highest vacancy rate at 38.9% followed by Portsmouth at 17.2%, Nashua at 13.3%, Salem at 11.9%, Concord at 10.5% and Manchester at 8.8%.

Russell reported that average asking rental rates posted “measured growth” in 2025, increasing 0.6% ($0.13 per square foot) to reach $21.75 modified gross.

The overall vacancy rate in the industrial sector is 5.9%, according to the report, which encompasses industrial, manufacturing and warehouse space.

“The industrial market remained active in 2025, particularly in small and medium-sized spaces, while demand for larger blocks slowed,” said Russell.

Among the six submarkets, the vacancy rate was highest in Nashua at 8.3%, followed by Concord at 8.0%, Salem at 6.7%, Dover at 4.8%, Manchester at 4.6% and Portsmouth at 3.4%.

Russell said asking rent dropped 2.6% in the past year, ending 2025 at $11.26 NNN (which stands for triple net, a lease term where the tenant pays, in addition to rent, all operating expenses: property taxes, insurance and maintenance).

“For investors and tenants, the current market offers distinct opportunities by sector. Warehouse leasing activity remains steady, though it varies by size,” said Russell. “Manufacturing presents a split market, with high construction costs potentially making retrofitting existing space more appealing than building new for value-add investors.”