Office vacancy rates continue to drop in southern NH
Industrial vacancies edge lower too
At Colliers International|New Hampshire, we internally track over 19.9 million square feet of office space and 64.05 million square feet of industrial space, including only buildings larger than 10,000 square feet across six New Hampshire submarkets.
With each new year, our brokerage teams closely evaluate their markets and critically assesses the use, quality and amenities of each property. This thorough re-evaluation led to a re-categorization of a portion of both office and industrial markets – for example, moving a General Industrial building into the Warehouse/Distribution category or moving a Class A building into the Class B category. It also contributed to the removal of some buildings if the use changed, for instance, from office to medical.
During the first quarter, office vacancy rates throughout the submarkets continued to drop, with the Portsmouth market remaining the lowest in the state, at 4.78 percent. Throughout the market, average asking rates steadily increased to $17.56 full gross, with Class A rising to $21.91 full gross.
This trend was particularly true in markets that have strengthened, like the Nashua and Manchester submarkets.
In Nashua, a confidential tenant subleased 14,000 square feet at 10 Tara Boulevard. Londonderry School District took the remaining 11,000 square feet of first-generation office space on the main floor at 6 Kitty Hawk Landing in Londonderry.
The Concord submarket, on the other hand, saw mixed results.
Overall rents in the Capital City fell below average, despite its Class A rates being second highest in the state. The lack of available Class A inventory supports this high asking rate. However, the lack of inventory may be due to the small Class A market when compared to other submarkets.
Concord has over 545,000 square feet of Class A space, but only 23,000 square feet available, equating to a 4.32 percent vacancy.
We see a similar trend in Portsmouth, with 4.4 percent vacancy in Class A buildings. There is just over 86,000 square feet available in a market with an inventory of 1.97± million square feet. Again, the demand for Class A space in the market continues to promote an above-average lease rate.
In the Salem submarket, Class A vacancy rates are dropping, yet still remain the highest market-wide, at 17.93 percent (81,688± square feet). Interestingly, rents are just above the average. This anomaly may be due to the submarket’s location.
The Boston Colliers office is reporting a year-over-year rent increase of 5.2 percent in their suburban market. Despite the above-average rents in the Salem market, when compared to the Boston suburban market rents, New Hampshire rents seem low. This could be enough of an incentive for tenants to choose New Hampshire and potentially explains why Salem’s rents are just behind Portsmouth.
With vacancy dropping in both the office and industrial markets, we are attributing this to new companies moving to New Hampshire, as well as the organic growth of companies already operating out of New Hampshire.
Norwegian-based AutoStore opened a new 20,000-square-foot U.S. headquarters in Derry. and Allegro MicroSystems expanded their footprint at their Perimeter Road location in Manchester.
In the Nashua submarket, Hitchiner Manufacturing, in Milford, will be constructing a new 85,000-square-foot facility, and Reliable Respiratory opened their first New Hampshire location in Merrimack.
In the industrial market, vacancy has gradually dropped to 5.3 percent and asking lease rates increased slightly to $6.92 NNN. We saw the largest decrease in vacancy in the General Industrial category, which may have been due to a few large deals in the first quarter.
In Londonderry, Kluber Lubrication took 65,000 square feet at 4 Kitty Hawk Landing and Arrow Tru-Line Inc. leased 26,000 square feet, opening their first New Hampshire location at 15 Liberty Drive. At 131 Broadway in Dover, Acadia Kitchens subleased a 14,000-square-foot space formerly leased to a cabinetmaking shop.
As vacancy continues to drop, we’ve noticed that the majority of the remaining available space in the market is obsolete or out-of-favor property types. We are seeing many users who need higher clear heights, better connectivity and more power, which most of the available space is lacking.
With limited inventory and even less “in demand” space available for lease, new “spec” or “near spec” (50 percent pre-leased and 50 percent to-be-leased) construction should be gearing up. That, however, is not the case.
While there are some big-box single-tenant, net-leased projects coming out of the ground near Manchester-Boston Regional Airport, those few projects are the exception, not the rule.
High costs for land, site costs and building costs, combined with near-stagnant lease rates, are the main reasons for little new spec construction. Owners are going to have to start weighing the cost of new construction versus the cost to upgrade their buildings to attract tenants that are actively looking in the market.
Time will tell if the strong economy and strong demand will lead to speculative construction.
Kristie Kyzer is Manchester-based research manager for Colliers International|New Hampshire.