Colliers: NH’s office vacancy rate falls to 10.7 percent, but market remains in flux
With vacancies at 2.9%, industrial space market remains tight
The New Hampshire office market has seen a steady decline in its vacancy rate this year. Falling by 0.7 percent since last year, the overall vacancy rate ended the year at 10.7 percent. Although higher than pre-pandemic levels, some large vacancies are being filled.
Some of the change in the vacancy rate is due to the residential conversion that is ongoing in the Concord, Manchester, and Nashua submarkets. However, in the Salem submarket the 1.5 percent drop in the vacancy rate was due to new tenants entering the market. Unfortunately, this shift is not long term. For example, the 16,000-square-foot unit that Optima Dermatology is operating out of in Salem will become vacant once its new facility is built in Windham in 2023.
While vacancy dropped over the last year, the overall asking rate increased by 5.4 percent year-over-year and ended the quarter at $20.65 modified gross. This is the largest increase the market has seen in more than five years. Rental rates in the Dover and Salem submarkets had the largest shift, increasing by more than 12 percent each.
In the Salem submarket, the factors contributing most to the rise is due to landlords increasing asking rates on space that has been on the market for a while and some lower priced space being leased this year, leaving only higher priced space on the market.
The rents in the Class A category had the largest change year-over-year, increasing by 5.8 percent ($1.37 per square-foot) and ending the quarter at $24.85 modified gross. This was mostly attributed to shifts in the Salem and Nashua submarkets. Similarly to the Salem submarket, the increase in the Nashua submarket rents was due to an increase in space that has been on the market.
In the Dover submarket, our smallest office submarket with 1.6 million square feet, the large shifts in the vacancy rate and rents were due to buildings hitting the market – like 100 Education Way in Dover. This 99,675 square-foot building was the former home of Cognia and purchased last year by the Kane Company. The building underwent renovations and was brought to the market in the third quarter this year.
While New Hampshire looks to be stabilizing from the impact of the work-from-home model – offices downsizing or closing – 2023 will still be impacted. Some companies may still downsize, while others are realizing the need to have employees back in the office. It will take more time for the market to know the final impact of the new workplace model.
At Colliers, we internally track over 23.8 million square feet of office space across six submarkets. Our inventory includes buildings and condominiums 10,000+ square feet and are classified as Class A, B, or C.
The vacancy rate in the New Hampshire industrial market was unchanged year-over-year, ending 2022 at 2.9 percent. While there were ample transactions this year, there were new larger vacancies that hit the market.
One of the large vacancies that affected the market during the fourth quarter was the EFI building at 12 Innovation Way in Londonderry. This 228,000-square-foot building hit the market in the second quarter, but became vacant in October. At the end of the fourth quarter, the Manchester submarket had a negative absorption of 191,560 square feet, but without this one building, the submarket would have absorbed 88,400 square feet.
Looking at the different industrial categories, the flex category had the largest decrease in its vacancy rate, falling by 2.2 percent year-over-year, ending the fourth quarter at 4.9 percent. This major shift was due to space in the Dover submarket when Sig Sauer leased roughly 123,000 square feet in Durham while renovating its new facility in Rochester. The Durham space may not be occupied for long as the renovations at its Rochester facility should be done by the middle of 2023.
Even with vacancy leveling out, the overall rental rate has continued to climb for the last two years by 22.8 percent year-over-year and ending the year at $10.96 modified gross. The only submarket to see a drop in it was Portsmouth, which fell by 6.1 percent ($0.60 per square-foot) due to changes in the warehouse/distribution category.
Typically if the vacancy rate falls, rents would remain flat or increase. The overall vacancy rate in the Portsmouth submarket dropped by 0.5 percent year-over-year. Yet, due to only three availabilities on the market in the warehouse/distribution category listed at rents well below the previous average, rents fell.
On the same note of atypical market directions, the rents in the Manchester submarket increased by 1.3 percent due to the flex building stated above. With this newly constructed building hitting the market at almost $5 per square-foot higher than average, it led to the overall asking rate to increase by 38 percent ($3.54 per square-foot).
As the vacancy rate is stable and rental rates continue to rise, average sale price per square-foot has increased by 5.6 percent since last year. While there were less sale transactions this year as compared to the previous, the average sale price per square-foot was $99 per square-foot, 6.6 percent compared to the previous year. The largest increases were in the manufacturing (39 percent) and warehouse/distribution (12 percent) categories. This was due to five sales trading above $200 per square-foot,, notably in the warehouse category.
At Colliers, we internally track over 71.2 million square feet of industrial space across six submarkets in New Hampshire. Our inventory includes buildings and condominiums 10,000+ square feet and are classified as manufacturing, flex/R&D or warehouse/distribution.
Kristie Russell is Colliers’ research manager for New Hampshire and Maine.