Dire predictions of an office-market Armageddon caused by the pandemic haven’t come to pass in Manchester – at least not yet. 

As the ongoing vaccine rollout continues to provide hope that the end of the year-long coronavirus crisis is in sight, commercial real estate brokers and landlords in the state’s largest city are beginning to ask: Is that it? 

There’s no doubt the pandemic has hurt segments of the commercial real estate sector New Hampshire, particularly the office and retail/restaurant subsectors, as remote-working and remote-shopping have firmly taken hold and called into question how much commercial space companies, bricks-and-mortar retailers and restaurant owners will require moving forward. 

Among the statistical signs of damage: Office-space net absorption was down hundreds of thousands of square feet as of late last year in New Hampshire, according to data from Colliers International. Similar data isn’t available for retail and restaurant spaces, but a mere look at all the storefront vacancy signs suggests deep trouble for those subsectors.  

Meanwhile, commercial construction has noticeably slowed, though new multifamily housing construction – and conversions of existing buildings into multifamily housing – has remained relatively strong, market-watchers say. 

But diving deeper into stats shows that the damage may not be as great as once feared in Manchester, whose negative year-over-year net office absorption was only 13,400 square feet as of late last year, according to Colliers. Meanwhile, prices for class A and class B office spaces in the Queen City continued to hover around $23.80 and $17.73 per square foot, respectively. 

Occupancy rates have also remained above 90 percent in Manchester’s 8 million-square-foot office market, with only a small year-over-year dip.  

Larger Spaces Stable 

So, what’s going on? 

“The initial fears are not coming to fruition,” said Denis Dancoes, senior director of the New Hampshire office of Cushman & Wakefield. “I don’t think the market will be robust in 2021, but it will not be the dire story some predicted. I predict a stronger-than-expected return to the office [by employees].” 

“The office market is holding its own,” said Chris Norwood, president of NAI Norwood Group, adding the current situation is “not as dark as once forecasted” at the outset of pandemic. 

But not everyone is breathing a cautious sigh of relief.  

John Jackman, president of Jackman Commercial Realty, said the office market “in general is doing terrible.”  

Jackman said larger brokerage firms tend to track only larger commercial vacancies in Manchester and elsewhere, not smaller spaces in the thousand-square-foot range, and he’s noticing a lot of office spaces opening up, as small companies move fully remote. He thinks the total office vacancy rate, when these smaller spaces are included, is actually in the 20 percent range. 

Ari Pollack, a real estate attorney with Gallagher, Callahan and Gartrell, said he’s not surprised about the confusion over what’s happening.  

“The market is still in the process of shifting,” he says. 

Satellite Offices to the Rescue? 

Eventually, Pollack believes larger tenants will indeed probably require less space – and that demand for less space will show up after current leases run out and companies renegotiate contracts. 

But he said some of the discarded spaces will be taken up by smaller companies hunting for lease deals – and some may be unlikely players from out of state.  

Precisely because so many more people will be working remotely and because many people like living in low-tax and aesthetically pleasing states like New Hampshire, many workers from Boston and even New York will opt to live and work full-time in the Granite State, Pollack said. 

But their employers will still want to have small offices where those remote workers can meet with their bosses, fellow area employees and clients. Pollack said he’s hearing of more Boston and New York firms expressing interest in opening small satellite offices in Manchester. 

“Once [remote workers] are here, they may need somewhere to meet,” Pollack said. “There’s a level of activity going on that’s not been detected yet. I do think there will be an increase in [lease] activity.” 

And all of that smaller-level activity could add up to vacant office spaces slowly filling up, though perhaps not to their pre-pandemic levels, Pollack said. 

Retail, Restaurants Troubled 

As for retail and restaurant spaces, some of which rely on downtown office workers, it’s definitely a worrisome subsector. 

Retail shops are hurting bad as a result of pandemic and the acceleration of e-commerce business. Ditto restaurants. 

But Norwood said he’s surprised by the amount of chatter he’s hearing about people planning to open new restaurants in Manchester and elsewhere. 

 “I thought it would take more time for [restaurants to recover], but they’re showing signs of bouncing back.” 

Still, he warned that the there’s a huge challenge facing restaurateur wannabes in Manchester: capital. It’s expensive to open restaurants, usually costing hundreds of thousands of dollars just to equip a kitchen, he noted. 

“Will banks be agreeable to loans?” he said. “That’s the big question.” 

Traffic Concerns Greet Industrial Boom 

One CRE sector in the Manchester area that’s actually thrived during the pandemic: Industrial spaces. Specifically, warehouses and distribution centers, as e-commerce companies gobble up more and more space by the day. But high-end light manufacturing is also doing well, industry officials say. 

According to Colliers data, the occupancy rate for Manchester’s 15 million square feet of industrial space is running at about 95 percent, with rents having increased by 3 percent year-over-year as of the end of the third quarter 2020. 

“The industrial sector is as strong as I’ve ever seen it,” said Colliers’ Rohrer. 

Matt Bacon, a senior advisor at SVN-The Masiello Group, said the amount of available industrial space for lease has been shrinking by the day as a result of strong demand in the Manchester area and elsewhere across the state. 

As for sale prices, he said competition for properties is fierce. Two years ago, industrial spaces used to sell for about 12 percent below asking prices. Today, properties typically sell for only 0.8 percent below asking price, according to SVN-The Masiello Group data. 

In other words, it’s a seller’s market – and sellers are mostly getting their asking prices, Bacon said. 

One looming challenge for the warehouse/distribution center subsector: Growing opposition to new distribution centers, with nearby residents becoming increasingly vocal in their opposition to construction of new facilities. Their fears: Truck traffic. 

“We need a lot more space,” said Bacon. “The industrial sector is very, very strong right now and we need more space.”