Nashua’s office market is showing signs of a slow-but-steady recovery – with smaller tenants taking the lead. 

The office vacancy rate in the city has been falling since the start of the year, from 13.1 percent in the first quarter to 12.7 percent in the second quarter to 11.4 percent in the third quarter, according to data from Cushman & Wakefield. 

That’s still considerably higher than the statewide office vacancy rate of 8.6 percent and the Manchester submarket’s vacancy rate of 6.1 percent. 

But it’s in line with improving office performances in other Granite State submarkets, such as in Portsmouth, where the vacancy rate was 11.2 percent as of the third quarter, according to data from Cushman & Wakefield, whose office report covers only the southern portion of New Hampshire. 

As the second largest office market in the state after Manchester, the Nashua submarket’s health is considered key to the state’s overall economic performance, due to its proximity to Massachusetts and its ability to lure companies and employees away from the Bay State. 

‘Slowly Getting Back to Normal’ 

Denis Dancoes, executive director of the New England region for Cushman & Wakefield, said the improving Nashua numbers point to the growing strength of southern New Hampshire’s office market in general, following the recent upheavals caused by the COVID pandemic and the rise of remote working. 

“Southern New Hampshire has proven to be a very resilient market,” said Dancoes. “Most of the [pandemic] fallout has run through the system. We’re slowly getting back to something like normal. It’s not the old normal. It’s a new normal.” 

Other industry observers agree that the office market in Nashua, and in the region as a whole, is showing signs of improvement, albeit slight improvements. 

“It’s been slow, but we’ve signed some [lease] deals of late,” said Jon Tamposi, principal broker at Korsak Realty, which markets, among other properties, the 100,000-square-foot 20 Trafalgar Square office building in Nashua. 

Like other CRE brokers, Tamposi said office lease deals today tend to be smaller, around 3,000 to 5,000 square feet, often with small tech, law and financial firms as tenants. 

“It’s starting to pick up a little after a long quiet period,” said Tamposi. “We’re currently negotiating a couple of deals.” 

Still, 20 Trafalgar Square, a class A building, has an occupancy rate of about 82 percent. 

And numerous other office facilities in Nashua, as well as across the state, also have large swaths of empty space within them. 

The reason: the rise of remote work. 

Larger Tenants Reluctant to Lease 

Companies have recently begun to lure some reluctant workers back to the office, but the numbers are nowhere near their pre-pandemic occupancy levels. 

Many larger firms remain hesitant about signing major leases for large spaces that they may not need if current remote-work trends hold, as many think they largely will. 

“The big firms aren’t doing as much,” said Larry Hirsh, owner of Hirsh & Company LLC, a Merrimack-based commercial real estate firm that does business in Nashua. “Many of them are sitting on a lot of space and waiting to see what happens.” 

Hirsh said he knows of one Nashua class A building of 28,000 square feet that’s sat half-empty for a while now. 

That and other empty spaces may explain why average office rents in Nashua have slightly fallen this year, from $19.29 per square foot in the first quarter to $18.86 per square foot as of the third, according to Cushman & Wakefield data. 

But Dancoes said that decline is “not alarming at all” for Nashua.  

“All it takes is one [lease] deal to change the rate averages,” he said, noting that Nashua’s lease rates, if anything, are showing signs of stabilizing. 

As for the types of tenants signing leases in the Nashua area, Hirsh said he’s also seeing a lot of smaller firms taking up spaces in the 1,500- to 3,000-square-foot range. 

“Smaller companies are signing leases,” he said. “It’s a flight to quality. They see an opportunity to move up.” 

Amenities to Lure Workers Back 

Indeed, a recent report by Colliers showed that the vacancy rate for class A space in Nashua was 8.7 percent as of the end of the second quarter. But the vacancy rate for class B space was 15.5 percent in Nashua as of the end of the second quarter, according to Colliers data. 

“It’s a mixed picture,” Hirsh said of Nashua’s overall office market performance. “There’s activity. But the parking lots at a lot of office buildings are still rather empty.” 

“The market is generally slow,” agreed Mark Prolman, owner of Prolman Realty Inc., a commercial real estate firm in Nashua. “Let’s put it this way: there’s more demand for industrial space than office space.” 

Prolman’s colleague, Lisa Ferrari, an agent at Prolman Realty, said activity is strong among smaller tenants, such as firms operated by CPAs, dentists and lawyers. Those tenants are looking for spaces of 5,000 square feet or less. 

It’s the larger spaces that are proving hard to fill, she said. 

“I’ve had a 6,000-square-foot building sitting empty for years – and only recently leased half of it,” she said. 

According to Ferrari, the problem is simple: the rise of remote work has lessened the demand for office space in Nashua and elsewhere. 

As a result, landlords are trying to entice tenants (and their employees) back to offices by offering additional amenities at facilities, such as new cafes, rooms for yoga classes and even day-care centers, Ferrari said. 

“It plays into the whole live-work-play trend,” she said. “The larger buildings are the ones suffering, so they’re the ones trying to entice people back with the extra amenities.”