Commercial real estate players should learn next year whether time truly heals all wounds – or at least some of them when it comes to New Hampshire’s battered office market. 

According to the latest quarterly data from Colliers International, the state’s office market continued its downward trajectory in 2021, the second year of the coronavirus pandemic that’s ravaged much of the state and national economies.  

Office vacancy rates continued to climb by 2.7 percentage points, ending the third quarter at 11.2 percent. Net office absorption, meanwhile, was a negative 373,000 square feet year-over-year, according to Colliers data. 

Among some of the larger downsizing moves last year were Cigna’s decision to vacate 97,200 square feet of office space in Hooksett, Lincoln Financial’s closure of 114,000 square feet of space in Concord, and Dell Technology’s abandonment of 198,000 square feet of space in Nashua. 

There can be no doubt: Those aren’t welcome numbers.  

“There was a noticeable softening of the office market in 2021,” said Chris Norwood, president of NAI Norwood Group.  

Office Optimists See Hope 

Yet Norwood and other industry leaders say they’re somewhat surprised the damage wasn’t greater, considering many employees continued to work from home in 2021, despite last year’s arrival of COVID-19 vaccinations, and as some tenants openly concluded they simply don’t need as much office space moving forward as a result of the apparent success of at-home work. 

“New Hampshire has not taken as big of a hit, not in the way the national media has portrayed the office market across the country,” he said. “I still think we’ll be coming out of this OK.” 

Robert Rohrer, managing director at Colliers in New Hampshire, agrees the office-market damage hasn’t been as bad hit as originally feared.  

If anything, there were encouraging signs of activity in the NH office sector in 2021, he says.  

Among some of the top lease deals in the third quarter were F.H. Cann & Assoc. subleasing about 58,000 square feet of space in Exeter and Alumni Venture Group’s expansion and relocation from downtown Manchester into 27,350 square feet of space in Jefferson Mills. 

“The office market did pick up a bit toward the end of the year,” said Rohrer.  

The big question is: What will tenants facing the end of their leases do next year? Market-watchers say they should have a clearer picture this time next year about where the office market stands in New Hampshire, after many tenants finally reveal their long-terms space needs and plans. 

Pessimists See Cause to Worry 

One pessimist is John Jackman, president of Jackman Commercial Reality, who said the office market is “not going well these days” and there’s no reason to expect a major rebound next year. 

“Some markets are doing better than others, such as Portsmouth,” he said. “But other markets are struggling.” 

According to Colliers, Portsmouth’s office market had a vacancy rate of 8.1 percent across its 4.5 million square feet of space as of the end of October. This past fall, The Kane Co. held a grand opening ceremony, attended by Gov. Chris Sununu, for its new 4-story, mixed-use building in Portsmouth’s booming North End. The facility is now the new home of Heinemann Publishing. 

Meanwhile, all is not well in other submarkets. The office vacancy rate in Nashua, which has 5.6 million square feet of space, was 14.5 percent as of the end of October; the Concord market, with 2.5 million square feet, was experiencing a 14.8 percent vacancy rate, according to Colliers. 

The state’s largest office market, Manchester, overall looks OK, with a vacancy rate of 9.1 percent. But, ominously, the Class A vacancy rate in Manchester stood at 14.4 percent at the end of October, according to Colliers. 

Fortunately, there hasn’t been much movement in office rents of late – and sale prices appear to have clawed their way back to pre-pandemic levels, according to Colliers. 

Industrial Stays Hot 

As the office market struggles in New Hampshire, the industrial market – and specifically warehouse and distribution-center space – remains hot, due to the strong demand from e-commerce companies and others. 

According to Colliers, the vacancy rate for industrial properties stood at 3.5 percent as of the end of October, with net absorption of 853,000 square feet. Average asking rent was up about 15 percent to about $8.28 per square foot. Not surprisingly, sale prices have spiked to an average of $86 per square foot, up from a pre-pandemic high of $74 per square foot. 

“Anything with a for-sale sign on it is going fast,” said Rohrer. “All the good buildings are full.”  

That demand is continuing to spur the construction of new warehouse/distribution centers, too. 

Even light manufacturing is doing relatively well in New Hampshire.  

This past year, LDI Solutions, which builds eco-friendly wall coverings and upholstery, recently finished construction of a new manufacturing facility in Rochester. Meanwhile, Intec Automation, builder of custom machines for a variety of companies, doubled its manufacturing space to 30,000 square feet in Rochester. 

Manchester Multifamily Strong 

Another CRE sector that’s doing well: Multifamily housing, both in sales and new construction, due to the high demand for housing and rising rents.  

Though construction of new multifamily housing continues to be stymied by local zoning laws, there is some new construction under way – and more in the works. Some credit the creation of the state’s new Housing Appeals Board for giving developers confidence to move forward with projects. 

Matt Bacon, a Realtor with SVN-The Masiello Group, said he knows of two new multifamily projects in the planning stages in Manchester, with a combined 400 to 500 units. He declined to name the developers. 

“That’s a lot of housing units, but it’s still not enough to meet demand,” he said, adding that permitted multifamily projects are “going fast” when put up for sale. 

As for 2022, Bacon, who also covers the industrial sector, said he sees “more of the same” in 2022, for both multifamily and industrial properties. 

“I don’t see the demand falling off for either,” he said. “The demand is not going to be met anytime soon.”