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

By Christopher Healey | Partner

The 2023 New Hampshire industrial real estate market experienced another strong year with sustained demand, increased lease rates, low supply, and limited speculative construction. Collectively, these conditions ultimately resulted in a market with an overall vacancy rate of 4.8%.

Though a significant increase from recent years (sub2% vacancy in 2022, for example), buyers & tenants seeking industrial space of all varieties found options to be quite limited, a trend we expect will continue into 2024, as much of the space attributed to the higher vacancy rate is found in large blocks.

Supply and Demand

For businesses looking at new sites/relocation, New Hampshire has a number of attractive qualities. In addition to its routine high scores for quality of life, proximity to major metropolitan areas, travel/accessibility, higher education, recreation, and healthcare, it also offers no state income or sales taxes.

Given New Hampshire’s proximity to Boston, many businesses closer to the city continue to experience a sustained run-up in occupancy costs. While we’ve seen lease rates increase rapidly in New Hampshire (from a long-time average in the $6.50-$8.00/SF NNN ballpark, to the current average of $11.42/SF NNN), our rates are often considerably more attractive than those south of the NH/MA state line. Using Massachusetts as an example, if a MA-based company relocates to NH, and that company is already employing NH residents, those folks would enjoy a “pay raise” by way of no longer having a state income tax. Additionally, reverse commuting, hybrid work schedules, and improved residential affordability relative to metro-Boston may further benefit the subject company and its employees.

Industrial users currently located in NH have been dealing with tight market conditions for some time now, and are more frequently having to compete with inbound groups. This has helped keep vacancy at bay, which excluding the past two years, has historically been closer to 6%, or more

Pricing Dynamics

In the leasing market, lower supply typically translates to higher lease rates. This has been the case in New Hampshire, given tighter vacancy. While there are currently a few speculative industrial buildings under construction in the market, these are mainly geared towards attracting larger tenants (think 75-100K± SF and up). Other new construction has been delivered in 2023, though much of it was for end users (owners and/ or tenants). In summary, while some new product was delivered to the market, the majority of it is occupied (and much of it is not suited for small to mid-sized companies), thus keeping vacancy slim, and lease rates high.

Regarding sales, industrial assets remain coveted, and pricing has held strong. In many instances, however, users have been able to outduel investors when competing to purchase property, and this shift can largely be attributed to the rapid climb of interest rates. While a user will generally be willing to pay more than an investor, the past few years offered historically low interest rates, which in turn afforded investors far more buying power. The rise in interest rates has also been a factor in decreased sale transaction volume relative to the past few years. All of this being said, identifying industrial real estate to acquire in New Hampshire remains challenging with many current owners reluctant to sell in the current climate.

Looking Forward

As we jump into 2024, we anticipate the industrial market to sustain its strong fundamentals. Quality industrial space in small-to-medium sized blocks (30K± SF and under) will remain challenging to identify, and it will be interesting to track leasing activity with some of the larger speculative developments currently under construction.

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