Reurbanization and Live/Stay/Play Making their Way to Southern New Hampshire
After a lackluster first quarter, the Southern New Hampshire office sector is showing strong potential as we head into the heart of 2015 and as the recovery that is firmly entrenched in major hubs like Boston begins to make its way to secondary markets. Notably, the trend toward reurbanization and the growing popularity of live/stay/play opportunities are driving activity in Portsmouth and promise to bolster activity in lagging submarkets like Manchester and Nashua.
As companies increasingly gravitate to downtown locations, Portsmouth is seeing steady demand. In fact, its 3 million-square-foot office inventory boasts the lowest vacancy rate (11 percent) and highest average asking rents ($20.31 per square foot) of the six New Hampshire office submarkets tracked by Cushman & Wakefield.
This vibrant seacoast city is the first New Hampshire market supporting speculative construction. Farley White built the 67,000-square-foot North Wing addition to 100 Arboretum Drive, bringing the building’s total to approximately 127,000 square feet. Our team serves as leasing agent for the property, where multiple deals are in the pipeline. At 249 Corporate Drive, the Katz Co. is building a 37,000-square-foot building and recently leased a significant portion of the space to Loftware Inc.
Renovation, redevelopment and repurposing of older buildings continues at a healthy pace as well. Additional bellwethers — including a new Whole Foods building and hotel product — reflect Portsmouth’s appeal as a 24/7 community.
Yet New Hampshire remains a mixed market. The downtowns of the state’s two largest population centers — Manchester and Nashua, with 4.2 million and 2.8 million square feet of office space, respectively — continue to struggle with vacancies hovering around 20 percent. However, good things are on the horizon in these harder-hit submarkets.
In Manchester, the University of New Hampshire absorbed nearly 100,000 square feet earlier this year with a lease at 88 Commercial Street. Further, a seacoast-based residential developer is acquiring the 128,000-square-foot former Citizens Bank building at 875 Elm Street, with plans to convert it to multifamily. That move will take a large block of space off the market, and will promote the live/work/stay theme that Manchester has labored to get off the ground, bringing more people and added vibrancy to downtown.
In Nashua, The John Flatley Co.’s 400-acre master-planned, mixed-use Gateway Hills project reflects strong potential. The company has had great success in branding and tenanting the property’s office and technology park components. Now Flatley is developing a 450-unit apartment community, which is leasing up quickly, along with neighborhood retail and amenities.
Regarding overall fundamentals, at the end of the first quarter the Southern New Hampshire office vacancy rate had trended up slightly year over year, to 18.8 percent, while direct asking rents dropped modestly to $17.44 per square foot. Leasing volume was off 49 percent, with just 135,000 square feet in activity versus 266,000 square feet during the first quarter of 2014. Much of this activity stemmed from renewals and expansion of existing regional office users, rather than new tenant in-migration. The high-tech sector continues as a bright spot promoting growth statewide, while business services firms have set a trend of occupier compression through efficiency-driven downsizing. Still, a number of insurance and law firm mergers are fostering regionalization, and we are seeing some expansion come out of those marriages.
It is unclear whether Southern New Hampshire’s sluggish first quarter provided a harbinger of things to come, or simply signaled a bump on the road to recovery. Given that the overall economy in the area remains stronger than average, it is likely that things will begin to turn around sooner rather than later. Unquestionably, the recovery will be led by the exciting paradigm shifts taking place in our downtown markets.
— By Thomas Farrelly, Executive Director, and Sharon Joyce, Research Director – New England, of Cushman & Wakefield of New England. This article originally appeared in the June/July 2015 issue of Northeast Real Estate Business magazine