New Hampshire’s industrial real estate market is finally cooling down after a long boom period originally sparked by the COVID-era’s strong demand for warehouse space occupied by e-commerce companies. 

Overall demand for industrial properties – which include warehouse (also known as distribution-and-logistics centers), manufacturing and flex space – remains strong in New Hampshire, as well as across the country. 

According to new data from Colliers International, the vacancy rate for industrial space stood at 5.7 percent at the end of the second quarter in New Hampshire – a healthy number by historic standards.  

Still, the vacancy rate was up by 2.8 percent in the second quarter, compared to the previous year, reversing numerous quarters of super-low vacancy rates. 

And the vacancy rate for warehouse space, which has been especially hot in recent years due to a surge in e-commerce since the COVID crisis first engulfed the nation in 2020, rose by 3.8 percent over the past year, according to Colliers. 

Meanwhile, asking industrial lease prices were down by about 1 percent over the past year, to about $11.98 per square foot, marking yet another reversal in the submarket, albeit a small one, according to Colliers. Asking lease prices in Salem, where the industrial vacancy rate was 11.6 percent in the second quarter, fell by 15.4 percent, the steepest quarterly decline in the state, according to Colliers. 

Rents Plateaued, Construction Slowed 

Prepared by research manager Kristie Russell, the Colliers report didn’t sound overly alarmed about recent industrial-market trends across the state. Indeed, the report suggested the slowdown might even be welcomed a bit. 

“In the last couple of years, the market has heavily favored landlords due to limited supply and high demand,” the Colliers report says. “Now the market is trending towards a healthier level, or more balanced, as rising vacancy rates are leading to more supply.” 

The report added: “Rental rates, which had been on an upward trajectory for several years, declined slightly, and are potentially starting to plateau.” 

Other commercial real estate experts agreed that a slowdown is clearly underway. 

“It’s not doom-and-gloom,” said Thomas Farrelly, executive managing partner of Cushman & Wakefield in New Hampshire. “It’s just not as explosive as was a year ago. Things have cooled off.” 

According to Farrelly and other industry players, there’s a number of market forces at work in New Hampshire. 

Demand for larger warehouse spaces has tapered off of late, with some larger firms, such as e-retail giant Amazon, appearing to have maxed out on the distribution-and-logistics space they need here and elsewhere.  

Indeed, Amazon two years ago pulled out of a planned transformation of the old Green Meadow Golf Club in Hudson into a giant distribution center in Hillsborough County, near the Massachusetts border. 

Then again, Target, normally viewed as a bricks-and-mortar retail giant, has subsequently bought the 375-acre Hudson site, with a developer now in the preliminary stages of constructing a new 1.4 million-square-foot distribution center, according to local press reports. 

Interest Rates Not the Only Obstacle 

The Target project and other smaller buildings may be pushing ahead. 

But industry observers say there’s been a distinct slowdown in the construction of new storage facilities across the state, due largely to skyrocketing construction costs, delivery delays of key building components (such as electronic transformers), and higher interest rates on construction loans. 

There’s also a small glut today of empty, or nearly empty, newly built warehouse space in New Hampshire. Many potential tenants are balking at paying the higher lease prices developers are asking for in order to cover their soaring building expenses. 

“Construction costs are not aligned with today’s demand,” said Chris Norwood, owner of NAI/Norwood Group in Bedford. “As a result, there’s some pullback on new construction.” 

Norwood said he expects demand and lease prices to eventually align, with now vacant spaces filling up, but it could take time.  

“There’s enough demand out there by tenants who want extra volume, but not at current prices,” he said. 

While demand for larger spaces has softened, demand for medium to small warehouses remains strong in some parts of the state – and there’s actually a shortage of space within that subcategory, industry officials say. 

Kent White, a principal broker at The Boulos Company, covers the Seacoast area’s commercial real estate market. The change in the industrial market’s dynamics started this winter and hasn’t let up since, he said. 

“Industrial was by far the strongest market for years in commercial real estate,” he said. “But it began to slow this past winter. The market has clearly changed.” 

Market Remains Strong 

But like other industry officials, White said he’s not overly alarmed because, overall, the industrial market in the Seacoast area remains strong. 

In fact, Portsmouth’s industrial vacancy rate stood at 1.4 percent as of the end of the second quarter, according to Colliers. And lease prices in Portsmouth slightly increase in the second quarter, to $12.46 per square foot. 

But other geographic regions aren’t seeing such stellar vacancy-rate numbers. 

As mentioned, Salem’s vacancy rate stood at 11.6 percent in the second quarter.  

Meanwhile, the vacancy rate in Nashua, the state’s largest industrial submarket with 20.7 million square feet of space, stood at 9.4 percent, according to Colliers. 

The vacancy rate in Manchester (the second largest industrial submarket with 17.3 million square feet) was 4.2 percent in the second quarter, while Dover’s industrial market (9.3 million square feet) stood at 3.7 percent, according to Colliers. 

Bob Rohrer, managing director at Colliers International in New Hampshire, said the industrial market is clearly adjusting to lower demand and other factors. 

“We’re not seeing the deal flow interest we’ve seen in the recent past,” he said. 

But the industrial market, compared to the office and other CRE markets, is still in solid shape. 

“There’s plenty of interest in industrial properties, particularly for owner-occupied properties,” he said. “E-commerce is here to stay. It’s a strong market.”