The state of the Seacoast

NHBR's editors met recently at the offices of the Greater Dover Chamber of Commerce with businesspeople from around the Seacoast to get their take on how the area's economy is faring and what their expectations are for the future. Participants were:

Will Arvelo, president, Great Bay Community College

Dave Boynton, director, Seacoast Local

David Choate, executive vice president, Grubb & Ellis/Coldstream Real Estate Advisors

Joshua Cyr, owner, Alpha Loft

Brian Gottlob, principal, PolEcon Research

Molly Hodgson Smith, executive director, Greater Dover Chamber of Commerce

Lauren Kane, Realtor, Re/Max By the Bay, and co-chair, Catapult Seacoast

Dan Morrison, chairman, president, CEO, Optima Bank

Guy Sylvester, CEO, Absolute Resource Associates

How are things going economically in the region, from a statistical standpoint?

Brian Gottlob: I have seen the Seacoast economy in a lot of ways symbolic or emblematic of the success that New Hampshire has built and is likely to have over the next several decades.

It's a region that is attractive to skilled, well-educated people. In today's economy, that is really a key ingredient for success. I use this saying all the time: "Brains are the most valuable resources of the 21st century." Well-educated, skilled people are very mobile. They are the most mobile people in society. They have more opportunities and more choices in where they can live. The secret to the Seacoast has been the fact that it has been a place that has been able to attract and have access to those people.

Initially, they came and worked somewhere else, but as we attracted more and more talent, we created our own entrepreneurial economy. I think that is what's occurring now. I think that is what has cushioned the downside for the region during the recession. Everyone took a hit over the past four years, but this region suffered a little bit less than all the other regions. The diversity of the economy I think has been the key to its rebound.

When I look at the data it's just the perfect complement between kind of Rockingham and Strafford County. They all have a little bit different strengths. If you just look at Strafford County, you have Liberty Mutual here in Dover and a little more manufacturing. In the Rockingham and Portsmouth area, you have manufacturing, but you also have the arts, recreation and entertainment as well as more retail. So when a recession hits we have enough diversity in the region that the bottom doesn't fall out. I think that is exactly what has happened.

What about the real estate market?

David Choate: We track office and industrial trends for six submarkets in New Hampshire. Two of those markets we define as Rochester, which is essentially Strafford County, and the other is the Portsmouth market, which includes the communities around Portsmouth.

The office market continues to be somewhat soft, running anywhere from a 17 to 20 percent vacancy rate. And that's not only space that's directly available, but subleases too. Pease is running a historically high vacancy rate currently, about 8 percent — Pease has always been around 5 percent.

Interestingly, what our problem is, is our industrial space is about half of that vacancy, although there are some exceptions, like the Goss building, which has a lot of space available.

The reason that is important is because there are a lot of manufacturing jobs that could be created, can be created and brought back from overseas because of what's going on in the world and the cost of wages rising in China, for example.

I hear it every day from our clients – "I have the jobs, but I can't find the skilled labor." Fortunately, the community college system has responded to that by starting to set up programs around the state, but then you have to ask how long will it be from inception to getting these people into the marketplace.

Dan Morrison: The unemployment rate of the greater Portsmouth area is 4.4 percent — about a point lower than the state, which is significantly lower than the national rate. It's been running like that throughout the downturn of the past four or five years. By a lot of measures, 4.4 percent is full employment, meaning there aren't a lot of people in this area looking. If you are having trouble finding employees, which we are, there's just not a lot out there — the economy is pretty strong here.

One of the drivers of a tight labor market has been housing. Is that an issue here as well?

Josh Cyr: I think there are a lot of people who have gone freelance, and they work for themselves now. Maybe the economy made them shift their jobs and they find they make pretty good money on their own. However, I can't get a mortgage for a couple years once I go freelance, so I need to rent. But I can tell you from the experience of most of my friends who have moved to the area, it's really difficult to find a decent apartment in Portsmouth. And I'm sure the same can be said for Dover. And the places you find are expensive.

It's especially hard for folks who have been priced out of the market. There have been people who might work in downtown Dover or Portsmouth who may not make that much money — the ones working in the coffee shops and other places — and they certainly can't afford to live in those areas.

Choate: The Housing Partnership just got a 42-unit affordable housing project approved in Dover, but that aside, I think the hottest segment of real estate in New Hampshire and other parts of the country is apartment development. Huge complexes are being proposed in every market you go.

The reason for that is exactly what Josh said. A lot of people can't afford a mortgage and would rather live in apartments. I don't know if you're seeing a move away from home ownership to apartments. I think the other category is people who have lost their houses, so they can't qualify for a mortgage and they have to go to rental housing.

Lauren Kane: The average cost of a home in Portsmouth is $325,000. A lot of people can't qualify for it. And a lot of people have had their credit affected by the downturn. Then we have to have the jobs that can sustain what the housing is calling for.

I would definitely agree — there's a great need for rentals.

Choate: I think there are a lot of good things going on. For instance, in the Cocheco Falls Mill in Dover, there are 120 units going in over the next year that are right downtown. And I think the jobs that need to be created that can afford that type of housing, or that middle-type range of housing that Josh was talking about, are really the small-business types of jobs — the entrepreneurial jobs. That's not to say we need to avoid attracting the manufacturing jobs. But I think the more we can encourage the entrepreneurial side of things, the better.

Cyr: I would suggest that is probably why the Seacoast fared so well during the downturn. Not only do we have a lot of diversity, but we also have a lot of locally owned businesses. And we were always supporting our locally owned businesses. There was always a strong interest in supporting local businesses.

Gottlob: The entrepreneurial aspect has been critical to the region. I can remember 15 years ago doing presentations in Dover as we were desperately trying to hold on to some of the old-line manufacturers. In Dover at least, there were very few business startups. Portsmouth had begun that process, and then you saw more and more of it and that's when the Portsmouth economy really began to take off.

I know Pease has been wonderful for larger businesses, but a lot of the good things that have happened in Portsmouth has been a result of the development of a reputation as a great place to start businesses as well. That's increasingly true in Dover, which makes me optimistic for this region. If you want a dynamic economy, you have to generate your own new businesses and startups.

Molly Hodgson Smith: We have almost 100 new members in the chamber over the past year. We haven't come near those numbers in a while. The majority of those new members are one- and two-person operations. That's very exciting. Our job, we feel, is to help those businesses succeed so that they are around to renew their membership in the following years. I certainly think that is a testimonial to the small businesses we see here.

Guy Sylvester: My wife and I own Absolute Resource Associates in Portsmouth. I consider ourselves very much entrepreneurial. In 2000, we acquired a business at $600,000 a year, and now we are pushing four times that size. We've hired three people in the past month.

A couple years ago, we made the decision to go after federal orders. We have been doing residential and commercial work, and that federal work landed us a nice job with the shipyard. We now do all the indoor work for West Point. It seems like that is kind of out of our region, but the fact is that we have people that go down and work there and bring the samples back to our lab in Portsmouth. So all the work is actually being done here in Portsmouth. That's why we can continue to grow.

In terms of the kind of industries here, what programs are among the most popular among students at the community college?

Will Arvelo: The community college students that come to us are interested in things like allied health, so nursing, dental hygiene, and those kinds of things that are pretty much still hiring. Those are jobs that if you can't find a job here, you can transfer somewhere else — you are employable for the long term. The other area where students are focusing their attention is the liberal arts, with the intention that they are going to do a year or two at the community college and then transfer on into the university system.

But more and more we are seeing students that are interested in what's called STEM — Science, Technology, Engineering and Math. There is a united effort across the state, in partnership with the governor's office, K-12, the community college system and the university system to really focus on developing students coming out of K-12 and interested in the areas of technology, science and math. Because we know those are the type of industries that we really need to grow our own.

In the past, we have been importing people who have had experience in technology and science and so forth. We know that we aren't attracting people from the outside as we did back in the '80s and '90s to the same degree. So we have to get to the point that we are growing our own, educating our own. And the community colleges have been very good at that.

In particular, we are focused on things like advanced manufacturing – most if not all of community colleges across the state are focused on one area or another of advanced manufacturing. In our particular case, we are focused on CNC training and composite materials. We have a partnership with two companies in Rochester — Albany International, which has relocated from Albany, N.Y., and Safran, which is kind of the General Electric of France.

We are also partnering with SIG Sauer. They are moving from Exeter to Pease, and they have asked us to come in and partner with them and build a CNC lab so they can train not only their current employees, but they want to go to a second and third shift.

As I talk to business and industry across the Seacoast just specifically about advanced technology we're talking about several thousand jobs that people are looking to hire for over the next several years.

Interestingly enough, one of the challenges is producing software engineers. There is a need for that, both in small and large companies. You're talking just on the Seacoast about a thousand jobs that haven't been filled.

Cyr: My space is kind of a co-working space, mostly for startups. A lot of people that aren't in the industry don't realize how much of an impact that we have. There are a considerable number of techy, creative folks that live on the Seacoast. We are a very attractive place for people to move to. So we have an extraordinary number of agencies that are basically consulting firms that will do Web application, Web design or mobile apps.

What happened is there were a bunch of other software companies that kind of blew up or were contracted during the last recession, so a lot of people went on their own and started consulting companies, and a lot of these consulting companies grew. So we are seeing somewhat of a resurgence of the tech startup culture.

There's a lot of history that has gone on here. There are a lot of great software developers, engineers that live here. We are also seeing a lot of people that are interested in moving to this area, and they are all in the creative tech space. The Seacoast is a very attractive area for them because they have discovered there is a rich culture of a lot of people like them but also a unique place to live.

Just as a quick aside, I decided to create what's called Seacoast.io. It's basically a Google map with a bunch of pinpoints on it that cover a bunch of different categories. It shows all the different tech companies and startups, existing consulting companies and resources. It also houses all the events and jobs that are related to that. After one week up, I had 16 jobs that are posted for good, high-paying jobs — $85,000-plus, easy. That's just going to continue to grow.

Sylvester: Up until about a year ago we hadn't had anyone leave our company for about six years. We hired a couple young people out of Keene State and trained them and they left for companies like GE. Are you seeing that people who are younger want to go to Boston?

Cyr: That's not my perception. I think a lot of people are starting their own companies or are freelancing in their own things. Age doesn't seem to be an issue in that.

In fact, there is to a large degree people that I don't think are even considering the Seacoast. You go where the jobs are, which may be Boston. There are a lot of people, especially in the northern Boston market, that don't think about the Seacoast and what it has to offer. They think about it as a nice place to go for dinner or spend the weekend.

But I think we are going to see a lot of in-migration on the Seacoast area, especially those with high-paying jobs. I think that is going to put a lot of pressure on the housing market. And I think that's going to make it more difficult for the more creative side of our region, who aren't so well paid, to be able to continue to stay. There's a real interesting conflict there.

Gottlob: A lot of people won't come here because of the job they are going to take. What happens if they aren't happy there, can they move across the street to find another employment opportunity? So the fact that you are targeting and highlighting all of those companies is great for developing that critical mass of technology and entrepreneurial, but what we need is to make sure that people know and understand we have that critical mass.

On the age issue, if you have grown up and lived here in New Hampshire your whole life, eventually you're going to want to go and live in the big city. It just happens. I don't think it's an age issue either, I think it's our young people have grown up in a relatively rural state and they are going to want to leave. And a lot of them are going to want to come back.

Hodgson Smith: Brian, you shared a fact at the beginning of this year about how Dover is bucking the trend of the graying of the state overall. I remember that really sticking with me because you were saying young families are attracted here.

I'm an example of someone who moved away in my 20s, went to Boston, worked for four years and came back to start a family. The quality of life piece was certainly my experience, and I see it every day in our Visitors Center. Most of the people that are walking in our doors for relocation materials are young families looking to settle down.

Gottlob: We had a narrative for a while that all young people were leaving the state. Unfortunately that was a great story, but when you take a look at the evidence, you see that we actually are attracting them. We have more younger people than we would have expected based on our demographics 10 years ago.

We have to look at it from this perspective: What's the difference between age progression and in- and out-migration? They confused that, and the story became that we are graying and losing all these young people. We're certainly getting older, there's no denying that – in any society that is what happens. Is it unmanageable? No. And particularly here in New Hampshire. I think we are getting, particularly in the Seacoast, more people. In the Upper Valley as well, because of their access to higher education. But the Seacoast with the access to Boston is great for them. I think we have done better than I would have expected.

Choate: Lauren, as head of Catapult, what are you hearing from members?

Kane: I think a lot of people who come to our events tend to think that maybe they can't find a job in the niche that they are looking for. That seems to be the trend the last few years.

We do tend to get a lot of self-employed, entrepreneurial people who are looking to network at our events as well. It's not always just people looking for work, but also to develop relationships. Arvelo: Lauren, the people that you say are looking for work, is it your sense that their skills that they went to college to acquire, are they vastly different than what the employers in the area are looking for? I'm assuming that if it was a software engineer or advanced technology skill, they would have employment.

Kane: Yes, I would say it's more like that situation where they aren't finding jobs within their degree.

Arvelo: And the question might be, if you come to the table with some sort of skill set, but the jobs are somewhere else, you want to consider to get some short-term training to get you up to speed so you can get employed in that area.

Hodgson Smith: The Dover school system has been doing a lot with the chamber. In fact, our education committees are planning for the spring to talk about career pathways. And if it's a student in high school that isn't going to go the four-year liberal arts road, pursuing those students earlier to show them where the jobs are.

Gottlob: That's exactly where I think schools failed a lot of students. That student who clearly isn't on a path to a four-year degree or even a two-year degree, but could under the right circumstances find training if they knew there was a job opportunity.

I used to speak a lot to guidance counselors. They have very little knowledge about the economy and what today's opportunities are. They are usually overwhelmed, so I'm not trying to denigrate them in any way. But for the most part the service sector is a very cruel place that is going to chew you up and spit you out unless you go to a four-year elite college.

The point is we know there are all these good jobs. I remember in high school one of the best places to be was in shop class. Why? Because everyone I knew was a motorhead or a gearhead. They would have loved today's economy because there are so many opportunities. I don't think those kinds of opportunities exist anymore.

Arvelo: I think at K-12, they are being advised to go to college for four years. You're going to go and get a job in an office, that sort of thing. That's something for us when we go to work with these two companies up in Rochester, we have to do a re-education campaign around advanced manufacturing because when you hear "manufacturing," you go back to the old way it was, dirty and dangerous. Now it's very clean, challenging and high tech.

I also wanted to mention a point about demographics. I'm noticing this at the Community College in Portsmouth. I think it's very healthy for the region — I'm seeing more Latinos and Latin Americans. I don't know where they are coming from, but they are starting to appear. Those are folks that if we can attract them in large enough numbers are going to be able to take advantage of some of these opportunities because they are looking for those opportunities.

But the challenge again will be going back to how can they afford to live on the Seacoast? It's very tough for someone in the lower-income levels to be able to do that.

Dave Boynton: When it comes to food, I think one opportunity that I would like to capitalize on is food manufacturing. It can be very advanced manufacturing, provide a lot of good jobs and provide our citizens with healthy food. New Hampshire only produces 6 to 9 percent of its own food. That's a security issue — I could go on for hours about it.

But when it comes down to it, we have a 400-year-old fishing industry where 90 percent of the fish leave the state because we don't have processing.

What prevents more food production from happening?

Boynton: Price is one thing, but specifically on the Seacoast we have seen loss of land. We don't have enough supply of products. Farmers are selling out at every market. It's fantastic for the farmers, but if we could connect and create farming production jobs, malt houses for beer, grain and meat production in the North Country and the western part of the state to here, with aggregation and distribution we could really create a lot of jobs and a healthier state.

Morrison: What makes it difficult for that to work? The economics of it. People are just so used to shopping at Walmart and big-box places. If you go to Walmart, you can buy food there, but none of it is local. It's coming from big factory farms. Factories that produce food, that who knows where it comes from.

Boynton: This is an educational process too. If you went today and bought organic fruit and vegetables from the Walmart up here, it mostly likely will be up to 20 percent higher-priced than at the farmer's market. People don't get that.

Morrison: The banking industry is victim of the same thing. It's dominated by Bank of America and the giant banks. As a locally owned bank, we love the locally owned businesses. I try to buy local food. I go to the local hardware stores if I can avoid Home Depot. I would like to see more people talking about this.

I think Seacoast Local can educate people to think that way. Most of what we do is lending to small businesses, and businesses that believe the same way.

Sylvester: As a small business owner, medical benefits are still a killer for us. It's nice that the younger generation can stay home and have benefits until they are 26. You hit 27, and you're paying $250 to $300 a month for benefits, or if you're a family, you're paying $500 to $600. That's a lot of money. I'm not sure what it's like if you went down to Boston.

Cyr: I think that health care is probably the single most fundamental barrier for entrepreneurship in the country. And the reason most of the freelance people are able to do that is because their spouse has benefits through their company. That's the reason I was able to do it. If you have a couple kids and you are a freelancer on your own, it's incredibly expensive.

So what you end up having is people who start up businesses when they have nothing to risk. They basically are rolling the dice. Or you have a scenario where one of the spouses has enabled you to be able to go out on your own because they have a policy that is relatively inexpensive. That is what is holding us back from entrepreneurship and new startups.

I don't know what's going to happen with health care over the next few years. But if that can be solved, America will be dramatically different in 10 years from now and the nature of our economy.

Boynton: I think one industry that gets overlooked a fair bit that is kind of nested in all of this is the local food system. When we talk about the economy of our state, it's great, but when we talk about the health of our state, it's not. One in five kids lives in a food unsecure home. There are one in three kids either tracking or obese. We're really looking at a scary situation. For the first time in the U.S. history, our average life expectancy has gone down. So we need to connect the dots and look at the bigger system and see how we can be proactive in making these changes.

Tourism, especially in the Portsmouth area, plays a role in the economy.

Gottlob: It is really concentrated more in the Portsmouth area, although Dover is getting there with the Children's Museum. Portsmouth has more of a concentration of arts and entertainment than most places in the state. You have an educated, relatively wealthy population that usually wants amenities in the communities. And the kinds of amenities they want are cultural, art, civic and natural.

We're still considered pretty rural here, but if you look across the country at rural areas, and I have looked at over 3,000 counties, a lot of those areas are not thriving. But the ones that are have a few that are characteristic. They have a high level of natural, but almost more important, culture and civic amenities. That's a lot of what people want.

A couple years ago, I did some studies on local tax cap initiatives. One of the concerns I have with them is, I don't care what a community spends, but the things that tend to be cut first and deepest are the cultural, civic amenities. Police and fire departments are the same, so you are taking away one of the critical ingredients that has helped more rural areas and small cities thrive. You won't find a small city anywhere that's busting out that doesn't have some really vibrant arts and civic culture.

Boynton: I don't think arts and culture would be so thriving in this area without the support of small businesses.

Pease is great for our economy, but you don't have a ton of art-focused things, like you do in downtown Portsmouth. It's the small businesses and the culture it creates when you're lending neighbor to neighbor and you're interacting with those businesses. You know that hardware store owner, you know the people that you are working with. And I think there is so much to be said to how that adds to the diversity that you are talking about.

Choate: One of the downsides we see is that basically success eliminates a lot of what these guys have been talking about. If you really take the time, and I urge everyone to do this, to say, "I'm going to go shopping in downtown Portsmouth." There are very few stores that you want to go into or buy anything. A lot of the good ones, frankly, have been priced out of the market. That's driven by high real estate values. If they own their own space, they're in better shape, but if you don't own your own space then you're at the whim of the landlord, and the landlord says, "If you don't want to pay me $35 a foot, I have 10 people who will." So what you really see is you have a lot of schlock, and frankly quality people are being driven out because they can't afford to pay those kinds of rent.

Gottlob: I'd rather have those challenges than the opposite — empty storefronts. If you ask people in the North Country if they would rather trade places with us and deal with the problems of higher rent and higher housing costs or would they rather be stuck where they are right now, I would guarantee they would rather have our set of problems.

Cyr: I think part of the nature of retail downtown is shifting quite a bit. A lot of people find it more convenient to go somewhere else, even when we had those opportunities downtown. I wonder where buyer habits are going to go in the future when so many people are going to purchase items online – and they are already buying online, and doing ridiculously rude things like going to a local bookstore and thumbing through and then pulling out your phone and purchasing the book, and telling the bookstore owner you're doing that as you walk out the door.

Boynton: It is even more broad and scarier than that. People's buying habits are shifting culturally as a whole. I think that you can't get anything that lasts more than a year, or it's not made to survive. We're in this disposable economy. We have to change the way we are even thinking about how we purchase. That's why organizations like ours exist. Because there are actually people that want to see that change on a larger scale, which is rewarding but not moving fast enough.

Gottlob: Let's understand. We're talking regions here. If it doesn't succeed in this region, where else in New Hampshire will it? This region is a higher-wealth region, we have the ability to sit around and talk about all these things. I can think of maybe Keene and a couple other places that these issues may also be at the forefront of their development.

Choate: What's interesting about this conversation is this is what our legislators need to do – talk and say at the end of the day what the results are. I don't hear a lot of disagreements, but consensus. There really isn't a divide. This is a dialogue.