Jacob Lee / March 7, 2023
The New Hampshire I-93/Route 3 Office Market continued to surprise the Covid-19 naysayers by remaining steady in both vacancy (7.6%) and lease rate ($14.33/SF NNN). All of which happened in the face of the continued expansion and success of the Work-From-Home model. Many large office users remain under lease for spaces that have few occupants on a daily basis. These companies have remained financially healthy through this transition from in-office to remote-work and are in no hurry to abandon the space that they once felt was instrumental in their culture and success. In addition, the new-age workforce is not interested in the 9-5 in-office lifestyle now that they have adapted to working remotely. The continued financial success of many companies that have embraced the remote work model and their advantage in attracting and retaining the new-age workforce is another reason they are re-thinking the importance of their large office locations. The competition for office workers is fierce and providing a balance of remote work with minimal in-office requirements is a desirable mix for many workers.
Companies that find themselves facing a lease renewal see the savings that can be generated from downsizing their footprint. However, they do not want to completely abandon the identity and stability that an office location can provide. The configuration of the new office space is being refined to provide more flexibility in seating with more meeting and team amenities for employee interaction. Making the office environment “more fun” with comfortable café and break seating goes hand-in-hand with more “hoteling” and “huddle rooms.” These areas replace the conventional “private office” to provide a more enjoyable in-office experience.
An example of a successful company choosing to downsize and reconfigure their office space at their lease expiration is Harvard Pilgrim at 650 Elm Street in Manchester. Harvard Pilgrim made the move from Bedford to take the entire top floor at 650 Elm in 2012. The 14,664± SF space was configured with a mix of offices and cubes, but also had an open seating café and an in-suite workout room with showers. At the time, this was the high-end direction that many companies were taking. The goal was to provide a more complete work experience for their employees, in a property that has all the downtown amenities, including an attached parking garage to provide a more urban experience. Once Covid shut down the in-person office operations, Harvard Pilgrim embraced the remote work model and continued to retain their culture and training through online opportunities. Facing a lease expiration in 2023, Harvard Pilgrim evaluated their in-office badge swipes and found that there was very little in-office attendance on most days. After an extensive review of the market alternatives, Harvard Pilgrim chose to downsize within the amenity rich 650 Elm Street building from the 14,664± SF top floor to 3,697± SF on the second floor (75% reduction). The new space will retain the high-end finishes and will include more open seating, huddle rooms, open café and very few offices. Maintaining a quality office for new employee recruitment, training and intermittent office attendance filled the need for their continued success.
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 continues to obtain approvals for residential conversions of their underutilized office properties. The 110,000± SF former Brookstone headquarters in Merrimack received approval to be converted to 90 residential units. This is on top of the conversion of 189,000± SF of office space at 1000 Elm in Manchester to 155 residential units and the complete reposition of the 95,000± SF office building at 1230 Elm to 100 residential units. 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.
As many in the industry have predicted, the long-term effects on the office market may not be fully realized for years to come. In the meantime, companies are still assessing what to do with their underutilized space. Fortunately for the New Hampshire Seacoast, the past three years have been better than most had forecasted.
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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