There may be a slight market switcheroo coming in 2024.

Since the COVID-19 pandemic hit in early 2020, commercial real estate’s office market in New Hampshire and across the country has taken a major hit, with many employees working remotely from home and weakening demand for office space in the process.

Meanwhile, CRE’s industrial market, already hot before the pandemic, became red-hot after the coronavirus hit, as home-confined residents relied more heavily on e-commerce delivery of a wide variety of items to their houses and apartments. That surge only heightened e-commerce firms’ already voracious demand for warehouse and distribution space.

But by the end of 2023, it appeared that the office market, at least in New Hampshire, was stabilizing a bit and tentatively looking forward to some improvements in 2024. The industrial market, on the other hand, has lately been showing signs of slowing down, as Amazon and other e-retailers reassess their need for more warehouse and distribution space, according to industry data and sources.

The net result in 2024: A possible switch, albeit a slight one, in the fortunes of office and industrial spaces, with the former showing signs of a small recovery and the latter experiencing a slowdown in demand.

Following is a look at the New Hampshire office and industrial sectors heading into 2024.

Office Rents Rose Last Year

Make no mistake: The office market in New Hampshire is not faring well compared to the sector’s pre-pandemic performance.

One hard-to-ignore example of sector woes is Liberty Mutual’s decision last year to vacate and put up for sale its two-building, 585,000-square-foot office campus in Dover, citing its long-term commitment to remote working and desire to consolidate its state workforce in the Portsmouth area.

But despite the Liberty Mutual and other office-property setbacks last year, the state’s office vacancy rate held steady throughout 2023, at around 11 percent, according to Colliers International data from the third quarter.

Even more impressive, asking lease prices actually rose last year by 3.7 percent, to $20.08 per square foot, compared to the same period in 2022, according to Colliers’ third-quarter data.

Granted, some of those gains are attributable to tens of thousands of square feet of office space being converted into residential and even retail spaces. Indeed, the Liberty Mutual campus in Dover is expected to be redeveloped into a mixed-use site in coming years.

Still, the Granite State office market is performing surprisingly well – and could get better this year as employers increasingly demand that their remote-working employees return to offices, if only on a hybrid basis.

“It’s getting a little better,” Thomas Farrelly, executive managing director at Cushman Wakefield-New Hampshire, said of return-to-office orders. “Employers want their workers back in the office because companies realize that collaboration and corporate culture are important.”

Despite recent return-to-office trends, the state’s office market clearly won’t revert to its old pre-pandemic days.

“It will continue to struggle,” said Farrelly. “There’s still challenges ahead.”

“There’s no going back,” said Bill Norton, president of Norton Asset Management. “Remote work is here to stay. The question is how much remote work.”

Industrial Not Flying as High

The high-flying industrial market will continue to fly high in 2024 – just not as high as in recent years.

That’s the assessment of commercial real estate players who think demand for industrial space, particularly warehouse and distribution space for e-retailers, may have peaked in 2023.

“It’s flattening,” said Norton of demand for industrial space. “It’s not growing as fast in some areas while it’s flattening in others.”

In recent years, giant retailers like Amazon seemingly couldn’t find enough warehouse and distribution-center space for their local e-commerce operations. But it became apparent last year that Amazon decided it had already obtained what it needed in New Hampshire, said Norton.

Kristie Russell, research manager at Colliers International, agreed that large e-retailers recently haven’t been as aggressive when it comes to snapping up warehouse and distribution properties in New Hampshire.

According to Colliers data, there were 21 industrial-property transactions as of 2023’s third quarter, compared to 72 deals during the same time period in 2022.

“I’d definitely say it’s slowing down in terms of transactions,” Russell said of the industrial sector’s performance of late.

Still, the sector remains strong – with average sale prices hovering around $108 per square foot in the third quarter, compared to $102 per square during the same time period in 2022, according to Colliers data.

Meanwhile, as of the third quarter, the industrial vacancy rate in New Hampshire stood at 3.1 percent, roughly where it was throughout most of 2023, according to Colliers data. The Portsmouth market has been especially tight, with its vacancy rate at 0.9 percent in the third quarter. The vacancy rate in Manchester stood at 2.5 percent.

The average third-quarter lease asking price for industrial space across the state was up 13.5 percent, to $11.87, compared to the same period in 2022, according to data.

Russell said smaller companies are still looking for warehouse and distribution spaces, keeping demand and prices high.

But demand is just not as strong as it was in recent years, she said.

Another concern: Interest rates and the costs of construction have gone up significantly of late. So even if demand calls for more warehouse and distribution space, high-cost market conditions could dampen the prospect of new industrial construction, Russell said.

“There’s still a lot of unknowns out there,” she said.