According to Search Labs, New Hampshire has been growing in population faster than other New England states, growing by 1.78% from 2020 to 2023. In this article I highlight a few key reasons why growth is occurring and the positive affect its had on our real estate market.
First and foremost is the consistent policy by every elected Governor to uphold a pledge of no sales or income tax. NH continuously ranks as one of the lowest tax states in the country, in 2024 WalletHub ranked NH as the second lowest overall tax burden in the country behind only Alaska. This is a key component of the “NH Advantage”.
Second, is access to high quality education which creates a highly educated workforce from which companies and industry can hire. According to Search Labs, approximately 40.7% of NH residents have a bachelor’s degree or higher, 93.8% over the age of 25 years old have a high school diploma or equivalent.
Third, the State of New Hampshire and local communities have made significant investments to their infrastructure. These investments continue to pay dividends for companies, residents and tourists. Below are just a few projects that have made a significant impact to the state.
The state’s investments in infrastructure shows a commitment to support NH’s economic growth by improving traffic capacity and traffic conditions. The I-93 and Route 3 transportation link remains critical for the growth of commerce by linking Central NH to Massachusetts and beyond. These massive roadway projects coupled with other community based projects to improve sewer capacity, water distribution and on-going changes to land use regulations by forward thinking planners to help create more housing units, all bode well for the future growth of New Hampshire’s commercial, industrial and residential real estate markets.
June, 2024 - New Hampshire’s Life Sciences Industry is quietly gaining momentum, providing high paying jobs and rewarding careers that adds resiliency to the commercial and industrial real estate markets. To the uninitiated, New Hampshire might seem like an unlikely location for life science companies to grow and thrive, as it turns out Southern NH and the Seacoast are perfectly positioned. Let’s first review location (I’m using Manchester as the center point) Manchester is 47 miles from the nation’s bio-tech hub Cambridge MA, 45 miles to Worcester (WPI), 64 miles from Hanover NH (Dartmouth), 53 miles from Portsmouth NH and 42 miles to the beautiful Lakes Region. This makes Manchester the geographical center point for life sciences companies to locate as it provides access to an educated workforce, in a low tax (no income tax) State with nearby collaboration hubs and recreational activities.
Thanks to the vision and hard work of business leaders, state economic development officials and federal funding sources the Southern and Seacoast real estate markets are experiencing a steady increase of life sciences companies expanding or relocating into the market. So much so that the Granite State has its first ever life sciences association, NH Life Sciences (NHLS), headed up by Andrea Hechavarria, President and CEO. I encourage you to visit their website at https://www.nhlifesciences.org/. In addition, there is a regional transformation taking place that includes the re-branding of the Merrimack Valley to ReGen Valley. ReGen Valley is a vision created by investor Dean Kamen who recently addressed a crowd of over 100 real estate professionals, contractors and developers at the May 2024 New England Real Estate Journal Forum held at the Advanced Regenerative Manufacturing Institute (ARMI) at 400 North Commercial Street. At this forum Mr. Kamen announced that the Department of Defense has committed $100 million over the next 10 years to the ARMI Institute to escalate the large-scale production of human tissue and organs. Kamen’s plea to the audience is for the development of much needed housing, additional commercial development and infrastructure needed to attract and retain life science workers living in the ReGen Valley. It’s predicted that 9,000 jobs will be generated over the next several years and there will be several thousand additional jobs to support this industry. A real time example of the growing life sciences industry working in conjunction with the Advanced Regenerative Manufacturing Institute (ARMI) is the commitment made by United Therapeutics. It moved its organ manufacturing facility from Burlington, Vermont and has recently completed renovations of an 80,000 square mill building located a 100 Commercial Street, Manchester. This is a state-of-the-art bio-manufacturing facility that has a goal of 3D printing/manufacturing patient-specific organs. What once was mill space for the manufacturing of textile products over 100 years ago will now be producing human organs. Fascinating!
In the Seacoast, companies such as Novocure, Novo Nordisk and Lonza have been operating and growing for several decades and they continue to thrive. It’s been reported that Novocure employs 300 to 400 workers in Portsmouth and another 350 people in West Lebanon. Novo Nordisk plans to add 100 more workers in 2024. And Lonza has approximately 1,500 employees at its Portsmouth facilities. According to a report released last June by the State of NH Business and Economic Development office, the New Hampshire life sciences industry generated $4.3 billion in sales in 2021 and represents 11,290 + jobs, with average salaries of $130,848 per year.
Why is this industry so important? It might seem obvious, but a growing life sciences industry will create jobs (good paying jobs) which is the underlying economic growth engine of the commercial, industrial, and residential real estate markets. It will also diversify our workforce which will make the New Hampshire economy resilient to downturns. This plus other factors is why approximately 1,400 apartments units are either under construction or in the pipeline to be built in Manchester. Portsmouth continues to have a steady pipeline of developers looking to construct mixed use projects in its downtown. Salem and Nashua continue to invest in public spaces and have attracted industry, retailers and residents from over the border into New Hampshire.
As we all know, a rising tide lifts all boats. Thanks to the vision and commitment of business leaders, the support of our U.S. Senators, Congressmen and State Officials the Southern NH/Seacoast markets are transforming and reinventing themselves. This is good news for real estate developers, owners, contractors and suppliers who look to invest in New Hampshire.
View New England Real Estate Journal June, 2024
August, 2024- I’m reflecting back on my NEREJ Article of August 2023 to provide an update on the Southern New Hampshire Industrial Market as compared to a year ago. As speculated in last year’s article, the anticipated pivot from low vacancy and rising rates has occurred and the industrial market is now experiencing, what I believe to be, late market cycle activity. (This is categorized as high vacancy rates and lower asking rates.) Unfortunately, the industrial market in Southern NH did not escape the effects of national macro-economic conditions that were brought upon by higher interest rates and a slowing economy. The rapid increase in interest rates, low unemployment and increasing construction cost continue to persist into the mid-year of 2024 and this has dampened demand for industrial space. Additionally, new speculative construction that was delivered to the market in late 2023 and early 2024 have increased the amount of available high bay distribution space which is putting negative pressure on asking rates. That being said, I don’t believe this will result in a retracement of asking rates back to pre-pandemic levels.
In last year’s article I highlighted the rapid increase in industrial rental rates to a range of $10.00 to $12.50/SF NNN for existing warehouse distribution space. (And, newly constructed industrial space being offered at $16.50 to $18.50+/SF NNN.) These rate increases were spurred by a tremendous demand for warehouse space, primarily driven by e-commerce and supply disruptions. That demand appears to be normalizing and the absorption of new space delivered to the market has slowed and asking rents are adjusting to the new supply of space. Fast forward to August of 2024, asking rates appear to be leveling out in the range of $10.00/SF -$11.45/SF NNN, on average. This is welcome news for tenants and end users as the supply of newly constructed space provides an opportunity to lease under more favorable terms and conditions.
As referenced above, the leveling off of asking rents, increasing vacancy and the delivery of new speculative construction is characteristic of a late market cycle. In a recent survey I conducted, using CoStar Analytics, vacancy increased to 5.9%, absorption of industrial space was a negative (196,000 SF), asking rates have leveled off, CAP Rates have increased from 8.12% in 2023 to 8.36% in 2024 and new construction of speculative industrial space has stopped. In a small market like Southern NH, the amount of new space delivered to the market in 2023 and early 2024 significantly increased the amount of available space causing a pause to the increase of triple net (NNN) asking rents.
Smartly, developers who saw the downturn coming made the decision to pivot away from construction while the market normalized. A couple of notable new projects that have stalled due to changing market conditions include, Granite Woods Commerce Center located at 47 Hackett Hill Road, (Hooksett) this is a 500,000 SF, 36’ clear modern industrial facility off I-93 at Exit 11. The developer has cleared the site but construction has not begun. The 173,000 SF high-bay industrial facility at 60 Pettengill Road that was expected to break ground in Q4 2023, has not yet broken ground. And lastly, 50 Robert Milligan Highway, (Merrimack) is a 324,000 SF, 36’ clear modern industrial building with 53 loading docks and easy access off Route 3, FE Everett Turnpike has been vacant since its construction in 2023. These plus many other smaller scale projects are aggressively pursuing tenants or being placed on the shelf until market conditions change.
Now as I look back on late 2022 thru 2023, this period of time may have marked the “peak” of this market cycle for Southern NH Industrial properties.
“So, what’s in store for next year?” We should continue to see market conditions favoring tenants as rates bottom, thus creating a more balanced market in 2025. There will be little to no new construction and there will continue to be demand from users looking to purchase existing industrial properties and absorption should turn positive. Only time will tell if 2025 is the start of a new market cycle. I’ll be sure to write about it in next year’s market update, stay tuned.
April, 2024- Given the amount of negativity and speculation regarding the state of the office market, I thought it would be helpful to turn the spotlight on this important segment of the commercial real estate market. If you’re like me, any board meeting I attend, fundraising function or public gathering people want to hear our take on the office market. The knee jerk answer from the casual observer is, the office market is “terrible”, “nothing is happening” and “ I’m sure glad I don’t own an office building”. This is understandable given what we read and hear in the media but this response minimizes the hard work, spent capital and intellectual capital being poured into this category of investment by owners and real estate advisers to help re-position these properties.
This spotlight article attempts to provide some statistical data for the NH Office Market coupled with some “boots on the ground” observations and experiences of what is actually transpiring in this important segment of the commercial real estate market.
The current market, as you probably expect, is not good for office building owners. Since the pandemic, some would argue even before the pandemic, there were signs that the office market was slowing and showing signs of being over-built. Below are the results of a recent survey of the Southern NH and Seacoast Office Markets, using CoStar Analytics that show weakness in the market:
The survey consisted of 11,400,000 SF of office space, net absorption is a negative (386,000) sf, increasing from a negative (47,900) from the prior 12 months. The vacancy rate is 22.9%, increasing from 18.8% from the prior 12 months. Total vacancy including sub-lease space is 27.9%, which I suspect is low given the amount of “dark space” not yet being reported as available. Market asking rates have stayed level at $20.77 modified gross. CAP Rates have increased from 9.5% to 9.9% and the average market sale price reported at $101/SF. And, not surprisingly there is no reported new construction of office buildings.
To state the obvious, these market conditions are favorable for tenants and buyers searching for space. As such, landlords find themselves in a very competitive environment, having to give concessions on rate, provide free rent, shorter lease terms and provide tenant improvements in order to retain and capture tenants. To make things even more challenging, utility costs, real estate taxes, insurance and TI’s have all gone up, thereby lowering their net rent which is needed to pay debt service and provide a return to investors. (Unfortunately, this all adds up to a loss of value either real or unrealized.)
A few of the dynamics affecting the Southern NH Office Market include, an aging demographic that is either retiring/semi-retired and are leaving the workforce without being replaced. Coupled with the ability for employees to work from home. The work from home phenomenon, spurred by the pandemic, is not going away any time soon as employees search for the “right” work/life balance. Advancements in technology have profoundly changed the way we work and the resistance by employees returning to the office 5 days a week seems to be settling out at 3 days per week. (With the shoulder days of the week, Monday and Friday being work from home days) Both of these trends are predicted to continue as technology improves (AI) thereby further reducing professional office employee headcount
For those of us who have lived long enough, we’ve seen downturns like this before. Unlike the market downturn of the 1990’s, regional banks and equity lenders are not rushing to foreclose or to take over these assets. There appears to be a willingness by lenders to work with borrowers to re-position properties, blend and extend financing and/or give the owner time to sell or raise capital. Some sound advice to building owners given by the CEO of a Boston based bank to #CRE-NE members at a recent meeting of The Counselors of Real Estate, is to communicate with your lender. “This is a time for more communication not less.”
The tactical work occurring in the Southern NH Office Market includes this; tens of thousands of square feet have been taken out of the market by converting office space into residential housing units. One local owner has creatively transformed a parking garage, once needed to support his office building, into market rate apartments. Also, traditional office space is being converted to non-traditional office uses. An example of this occurred when Bill Norton, #CRE and I worked with the owner of a vacant 20,000 SF former HQ building in Concord NH. The building was repositioned from single tenant to multi-tenant by splitting the floors and creating a common entry. The ground floor was leased to a Charter School and the upper floor was leased to Regis for shared office use. Other examples include, the current transformation of former mill office space into bio-tech manufacturing space occurring in Manchester’s mill yard, known now as “ReGen Valley”.
In summary, the Southern NH Office Market is experiencing a transformation and will continue to experience challenges as the market “right sizes” in order to accommodate the employees of the future.
Michael Harrington
603.785.8601
mike@harringtonandcompany.com
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