Financial service and medical-related firms are among the smaller companies helping to prop up New Hampshire’s still struggling office market, according to a new report.

The state’s office vacancy rate nudged up in the first quarter of 2025, to 14.1 percent compared to 13.2 percent during the same period in 2024, according to the latest research from brokerage Colliers International.

Meanwhile, the average asking rent price dipped by 0.9 percent to $21.46 per square foot during the same time periods, according to Colliers.

While not overly concerning, those numbers nevertheless occurred after 6.6 percent of all class C office spaces and 2.1 percent of class A spaces were converted to apartments last year.

Statistically, such conversions would normally help drive down the vacancy rate. But that didn’t happen.

The reason: larger companies continued to reduce their real estate footprints last quarter, particularly in the Seacoast area, keeping the statewide vacancy rate higher than one might expect after so many conversions.

Downsizing Helps Drive Demand

Still, real estate players say there’s cause for optimism, particularly because other businesses are snapping up smaller spaces in key metro submarkets.

They include tech firms downsizing their real estate needs – and they include financial services, medical employers and other firms grabbing relatively small amounts of office spaces.

“Tenant demand remains strong for smaller blocks of space, typically 5,000 [square feet] or less,” Colliers said in its first-quarter report.

“While there are still occasional deals in the 10,000 to 15,000[-square-foot] range, activity is mostly concentrated in smaller footprints. Medical office users and financial services firms are among the most active in the market, and they tend to favor these smaller spaces.”

The Colliers report added: While “there is healthy leasing activity, it’s not expected to drive down vacancy in any significant way over the next year.”

Matt Robinson, a commercial real estate advisor at NAI Norwood Group, agreed that smaller-space activity has picked up in recent months.

“I’m seeing a lot of interest in this area,” he said. “There’s high demand for these smaller spaces. But for larger spaces, there isn’t as much demand as there once was. For the larger spaces, the demand is definitely down.”

He said he knows of one property owner who subdivided a 60,000-square-foot building in Hooksett into four separate units, as part of strategy to make his property more attractive to firms looking for smaller spaces.

Some Large Deals Still Happen

That’s not to say larger deals aren’t getting done.

In the first quarter, Phoenix Tailings, a Massachusetts mining and metal production company, leased 51,000 square feet of flex space in the 263,500-square-foot class A office building at 100 Domain Drive in Exeter, according to Colliers.

GZA GeoEnvironmental has decided to relocate from Bedford into 17,000 square feet of class B space at 14 Central Park Drive in Hooksett, Colliers noted in its report.

Acadia Insurance, meanwhile, renewed its lease at 4 Bedford Farms Drive in Bedford, though that was a downsizing move into 15,135 square feet to maintain its presence in the market, Colliers said.

Bob Rohrer, managing director of Colliers New Hampshire, said he’s “relatively optimistic” about the state’s overall office market.

“It’s doing better than the doom-and-gloom you hear all the time in the media,” he said. “It’s holding its own.”

In particular, he said he’s impressed with the performance of the so-called “central triangle” of New Hampshire, which extends from the north in Concord (10.2 percent vacancy rate) to the southern submarkets of Manchester (8.4 percent vacancy), Nashua (13.5 percent) and Salem (25.8 percent).

Seacoast’s Woes

However, the Seacoast/eastern regional market is a different matter, with Dover experiencing a nearly 40 percent vacancy rate, largely due to Liberty Mutual’s decision to vacate its huge campus in Dover and move employers to Portsmouth.

But Portsmouth’s own vacancy rate remains stubbornly high as well, at 15.3 percent, Colliers reports.

And some believe the actual Portsmouth vacancy rate, depending on how one geographically defines a submarket, may be as high as 20 percent.

The reason again: Larger companies are reducing their space needs, officials say.

Kent White, a principal broker and partner at the Boulos Company, said larger Seacoast properties are simply harder to fill these days.

He noted that some major firms, such as Timberland, are often putting office spaces up for lease, not taking out leases.

“They just don’t need as much space,” White said.

He agreed with others that smaller companies looking for relatively smaller spaces are helping the overall market.

“That’s one of the big drivers in the Seacoast – smaller businesses looking for space,” he said.

Portsmouth Amenities Still Support Rents

Indeed, Portsmouth, a hugely popular city known for its quaintness and excellent restaurant scene, still has the highest asking rent prices in the state, at $25.78 per square foot.

“The [Seacoast] market isn’t exactly healthy, but it’s far from dire,” White said.

Bill Norton, president of Norton Asset Management, said the overall state office market has indeed improved since the end of the pandemic.

“It’s slowly coming back,” he noted.

But there are indeed headwinds, including tenants who continue to reassess their space needs, he said.

He also noted that about 10 percent of all office properties are refinanced each year.

And that means building owners who must refinance their mortgages this year are getting hit with interest rates of around 6.8 percent, up from rates set in prior years at around 3 percent or lower.

That financing increase is on top of higher costs in general for office owners, from higher utility bills to higher property taxes to higher construction prices, he said.

Another major headwind: President Donald Trump’s tariffs.

“It’s creating a lot of economic uncertainty,” Rohrer of Colliers said of tariffs in general.

He noted some developers are becoming more cautious about starting various projects.

“They’re not coming to a full stop,” he said. “But they are saying, ‘Eh, I don’t know about this. Maybe we should wait.’ Businesses don’t like uncertainty. Investors don’t like uncertainty. Nobody likes uncertainty.”