The Manchester/I-93/Route 3 Office Market 2024 Update

By Roger Dieker | Managing Broker, Partner

The New Hampshire I-93/Route 3 Office market remained stable through 2023 with a slight increase in both vacancy (8.5%) and lease rates ($15.36/SF NNN). With the majority of office lease terms averaging 5 years, 2023 marked the 3-year mark from Covid-19 and the enhanced use of remote work. As these PreCovid leases continue to expire, many office users strive to downsize their footprints with a combination of remote work options with some in-office training and a few days per week of in-office work.

Many of the office users with leases expiring in 2021 and 2022 tried to take advantage of the remote work phenomenon by reducing their square footage by 80-90% of their Pre-Covid footprint, only to come back to their landlords in 2023 looking for 10-20% more space. Stabilizing at 30-40% of their Pre-Covid space, is still a big win. Many of the office users with leases expiring in 2024 are repeating those 2021 & 2022 expiration mistakes by attempting to downsize to an extreme level. United Healthcare in Hooksett has a 2024 lease expiration and is attempting to completely eliminate their 65,500± SF premises, to go to a majority remote work model with a shared office location to provide a local training and flexible office plan. Companies that are heavy on the customer service/call center workload are finding more success with the remote work model than companies that rely on collaboration among employees. Fidelity Investments in Merrimack is revising their work model to require 50% in office attendance in an effort to increase employee collaboration after working 100% remote in the PostCovid era.

As the office buildings navigate the world of downsizing tenants, buildings that have smaller floor plates or can be easily sub-divided are in strong demand for these smaller tenants that want amenities and spaces that can attract workers to the office. Comfortable seating in a café style with small breakout rooms for privacy are now replacing the standard 10’x12’ office or 6’x6’ cubes. Providing food and work-out spaces are also drawing many employees back to the office on a more regular basis. Companies with 2024 and 2025 lease renewals are evaluating the savings that can be generated from downsizing their footprint, but do not want to completely abandon the identity and stability that an office location can provide. The configuration of the new office space is primarily designed to draw employees back to the office for more employee interaction.

The stability in the vacancy rate during this period of downsizing tenants is enhanced by the increasing trend to convert urban office space to residential apartments. This is due to the desperate need for affordable housing. Brady Sullivan patiently waits to obtain approvals for residential conversions of their underutilized office properties. The 100,000± SF former Cigna Healthcare building in Hooksett continues to work through the appeals process to enable the construction of residential apartment units which are in high demand in the Manchester-Concord corridor. More office space at 1000 Elm Street in Manchester is under construction for residential conversion as well as the 95,000± SF office building at 1230 Elm Street. Office to residential conversion helps to lower the overall office vacancy and keep the supply and demand forces for office at a healthy balance, as well as address the housing crisis.

New Hampshire Office Market Forecast

The I-93/Route 3 Office market will remain stable with regard to vacancy and lease rates as the office users continue to downsize and reconfigure their space. In turn, many office property owners will choose to go through the zoning and approval process to convert their properties to multifamily residences.

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