According to a market analysis prepared for Colliers International by Kristie Russell, research manager for New Hampshire, the statewide vacancy rate for industrial space, which includes manufacturing, flexibility/research and development, and warehouse/distribution, it was 3.1% in the third quarter. and Maine.
A separate report by Russell that examined the office market showed a third-quarter vacancy rate of 11.2% statewide. Office vacancy started to climb from just over 8% after Q3 2020, the onset of the Covid-19 pandemic, to well over 11% in Q3 2021 before declining slightly this quarter .
Currently, according to Colliers, there are approximately 71,226,000 square feet of industrial space in New Hampshire. Between Q3 2021 through Q3 2022, it grew by just 119,000 square feet while demand remained very high.
“Industry space continues to be hard to come by with the overall vacancy rate hovering around 3% over the past four quarters,” Russell noted in his report. “Since its initial decrease during the second quarter of 2020, vacancies are stabilizing with a 0.4% decline over the past year due to limited availability.”
Industrial space is occupied as soon as it is vacated, he wrote. The other problem, she noted, is that some old industrial spaces aren’t suited to the needs of a modern manufacturing company. Often the older space “doesn’t have the electricity it needs. It doesn’t have loading docks, driving doors, anything like that.”
The market is particularly tight in the Portsmouth and Manchester sub-markets, according to the report, with the vacancy rate in Portsmouth at 1.9% and Manchester at 1.0%.
The vacancy rate for the Nashua Submarket was 3.3%. Concord’s vacancy rate was 4.0%, Salem was 8.4%, and Dover was 4.1%.
The report also looks at the take-up rate, which is used to tell the difference between the amount of space vacated by tenants and the tenants who have moved into the space. Positive take-up is when more space is rented than is vacated; negative absorption is less space rented than vacated.
After showing negative absorption in the second quarter of 2022, the absorption rate increased in the third quarter by nearly 135,000 square feet.
The law of supply and demand was also at work in the industrial market. Rents are measured by something called a triple net (NNN). With an NNN lease, tenants pay additional charges per square foot on top of the rent. NNN rates include property taxes, property insurance, and common area maintenance costs for a building.
Asking rents went from an average of $8.27 NNN in Q3 2021 to $20.52 in Q3 2022. As for average asked rents in each sector: Manufacturing was $8.01, flex/R&D was $10.45 and warehousing/distribution was $11.10.
One of the most active investors in the market, according to Russell’s report, is RJ Kelly Company, based in Burlington, Mass. He noted that it acquired 18 properties in the most recent quarter.
In August, he said, RJ Kelly participated in separate transactions that involved the purchase of 14 properties totaling 745,500 square feet for $90 million, with an average selling price of $118 per square foot. Properties are in Amherst, Hudson, Londonderry, Manchester, Nashua and Salem.
In September, it purchased an additional 112,360 square feet in three flex buildings on 13.05 acres for $13.375 million ($119 per square foot) at 15, 18, 20 and 22 Continental Boulevard in Nashua.
One of Kelly’s acquisitions – 121 Technology Drive in Durham – will temporarily house Sig Sauer as the Portsmouth-based firearms maker’s space in Rochester is adapted to accommodate its new 10-year, $4.5 billion contract with the US Army to produce its next generation handguns and ammunition.
Kelly paid $21 million in October 2021 to purchase the 500,000 square feet of office and manufacturing space in Durham, with high-ceilinged warehouse space and a total floor space of more than 170 acres that would allow for further expansion. The space was originally built by press manufacturer Goss.
Russell noted that Sig Sauer will occupy 123,890 square feet as it renovates its manufacturing space on Amarosa Drive in Rochester.
An example of a more modern and needed industrial space is a jointly proposed project by The Kane Company and Procon at Pease International Tradeport. In October, they announced plans to build an “advanced manufacturing facility development” on an 11-acre site along New Hampshire Avenue at Tradeport. A 209,750 square foot building is proposed for the site.
On the office side of the ledger, total inventory square footage hasn’t changed much in the last year. The current 23,825,000 square feet mark no change from the second quarter and is slightly less than the 23,875,000 square feet in the third quarter of 2021.
Job vacancy rate rose from 11.7% in Q3 2021 to 11.4% in Q2 2022 to 11.2% in the third quarter of 2022.
In Russell’s analysis, the 11.2% rate is good news because it shows stabilizing after the pandemic forced workers home, doing their jobs remotely for nearly two years.
“Through Covid, the vacancy rate has increased so much; it went from just over 8% down to 11%. So obviously that’s a big change,” Russell said. “Over the last four quarters, it’s been pretty much the same vacancy rate. So it’s not going any higher right now, which is good news.
The office space take-up rate was positive, a gain of 54,700 sq. ft. after a loss in Q3 2021 (-120,300 sf) and another loss in Q2 2022 (-23,200 sf).
Even though the demand for office space has gone down, prices have not gone down.
“Over the past year, we have commented on how required rents have increased along with vacancies. In a typical market, the rule of supply and demand would mean that as vacancies increase, the rent would soon start to fall. That hasn’t been the case in either industry,” Russell said.
Commercial office leasing for the Colliers relationship is measured in MG – gross adjusted – with the tenant and landlord sharing responsibility for paying certain property expenses.
MG’s asking rent per square foot in the third quarter was $20.52, compared to $20.26 in the second quarter and $19.51 in the third quarter of 2021.
Among the six submarkets, Concord’s vacancy rate was 11.8% and median rent was $19.95, Dover was 11.4% and $17.95, Manchester was 8 .3% and $19.33, Portsmouth was 11.2% and $24.15, Manchester was 8.3% and $19.33, Salem was 15.0 percent and $24.18, and Nashua was 14.4 percent and $18.98.
Much of the office space in the Portsmouth submarket is concentrated at Pease International Tradeport, where its executive director, Paul Brean, sees the difference the move to a hybrid workforce has made.
“We don’t know if we will see 11,000 employees return to the Tradeport every day. We have companies – obviously our largest tenants Sig Sauer and Lonza – need to have their employees here 24/7 for on-site production,” Brean said. “But we have a number of more conventional employees that companies recognize that you have to enable some kind of remote or hybrid to be competitive in retaining people and recruiting people.”
He said the need lies in the type of manufacturing space proposed by Kane and Procon.
“They’ve also looked at the market very well and recognize that there is such a demand for advanced manufacturing warehouse space; that’s where the value is in that real estate right now,” she said.
Russell noted in his office report that one of the largest office transactions to take place over the past two years was the sale of 100 Domain Drive in Exeter.
The 263,500-square-foot Class A multi-tenant office building was purchased by Massachusetts-based Torrington Properties for $46.9 million ($178 per square foot). The building was approximately 70% occupied at the time of the sale to tenants including Bauer Hockey, FH Cann & Associates, Digital Prospectors, Garnett Hill and Vapotherm, which recently announced plans to close its manufacturing operations in Exeter.
Russell’s report also took over the business of ConvenientMD and Optima Dermatology.
ConvenientMD opened its first walk-in urgent care center in 2012 and moved its base of operations to 111 New Hampshire Ave. at Tradeport in 2016. Last quarter, ConvenientMD announced plans to move its headquarters to a new commercial building at West End Yards in Portsmouth, according to the Russell report.
With the company moving later this year, freeing up 10,600 square feet, a lease for space in the building has been signed by Optima Dermatology, founded last year by Max Puyanic, also one of the original founders of ConvenientMD .
According to Puyanic, corporate offices will occupy the second floor, starting in June or July next year, growing out of existing space on Heritage Avenue in Portsmouth. Part of the first floor is being renovated to house Optima’s new pathology laboratory.
“We need more corporate office space, what we call our practice support center,” he said. “And we are building a new state-of-the-art pathology laboratory, which would serve all of our studies. We’ve hired a very talented person to drive it for us. And then we have some pathologists lined up.
Russell’s report noted that Optima also leased space at 25 Pelham Road. in Salem as it awaits its new 10,200 square foot facility at Gateway Park in Windham. Scheduled for completion in 2023, this is the second self-contained building under construction for Optima. It is also constructing a 10,000 square foot building in Stratham. Puyanic also said the company is opening a new facility in Bedford.