The overall vacancy rate in New Hampshire’s industrial and office real estate markets stayed flat in the third quarter despite the headwinds both sectors have begun to face in other markets.
The industrial market continues to be historically tight, with a vacancy rate of only 3.1 percent according to Colliers research. Manufacturing properties saw the least availability with a vacancy rate of only 1.5 percent and an average asking rent of $8.01, triple net. The warehouse/distribution sector saw a 2.8 percent vacancy rate and average asking rent of $11.10. Flex/R&D space saw the loosest conditions: a vacancy rate of 5.4 percent and an average asking rent of $10.45.
The Salem and Manchester submarkets saw rents rise by $4 per square foot. In the former case thanks to space being leased up at lower-than-typical prices, leaving only a few higher-priced properties available. In the latter market, several new spaces came online at higher-than-average prices leading to a 54.4 percent jump in average asking rent.
Most of the industrial investment sales across the state last quarter were made to Massachusetts investors looking to grow their portfolios in New Hampshire, with an average sale price of $136 per square foot.
The strong market is a contrast to other parts of the country, where Amazon’s pullback from many industrial spaces it leased for distribution facilities and general concerns about a potential recession have seen investors’ and tenants’ ardor for industrial space cool.
The office sector saw vacancy drop a mere 0.5 percent year-over-year to 11.2 percent, Colliers said, as leases absorbed 54,700 square feet. Overall average asking rent increased slightly year-on-year and month-on-month to $20.52.
The state saw office-to-other-use conversions take enough square footage off the market to reduce the class B vacancy rate by 0.9 percent and the class C rate by 1.4 percent. Pending conversions of class B properties at 1000 and 1230 Elm St. in Manchester will reduce supply in that category further, by around 95,000 square feet, Colliers said.
Even as the pandemic has caused many office tenants to rethink their office needs and potentially reduce their footprints, it’s not likely that asking rents are going to drop soon, Colliers said. However, landlords do seem to be offering more concessions like months of free rent, increases in tenant improvement allowances, renegotiating lease terms during renewals or allowing tenants to give back parts of their space so long as they stayed in the building.
The “flight to quality” seen in other markets appears to be active in New Hampshire, as well, with class A rents rising by 5.5 percent thanks to new construction and high-quality space coming to the market in the Manchester and Portsmouth areas.
