Kent White / August 3, 2021
As of August 1st 2021, we are beginning to get a better picture of the overall health of the New Hampshire Seacoast office market. Every December, The Boulos Company completes a Market Outlook reviewing the current office and industrial vacancy, as well as forecasting for the upcoming year. Most years, we feel very confident in our predictions and history shows that we have been fairly accurate! Trying to forecast for 2021 left many of us questioning our predictions on a daily basis as the pandemic surged and political discourse intensified into the fall and early winter. There was, however, a consensus that the office market sector was going to be the most negatively-impacted. For the most part, this presumption has proved accurate, but not nearly as bad as some had feared.
The looming question at the end of 2020 was whether office tenants would return to their office space at pre-COVID occupancy levels or continue to work from home. At the time, most businesses were still taking a “wait and see” approach, but the answer to this question is starting to come into focus. Most companies have made their decisions, and we expect that over the next 6-12 months, those decisions will be implemented. The hope is that many of these companies have concluded that working remotely can work, but place more value on the office environment for their employees. The majority of “chatter” we hear in the market is that most businesses that have not returned to the office will do so after September 1st. As one business owner told me, “Let’s get through summer, get the kids back in school, and then it’s back to normal.” This especially seems true with local and regional businesses, as larger national companies seem to be reacting more slowly.
In order to understand how the office market has changed in the last seven months, we decided to update our vacancy report. We focused on the Pease Tradeport and Portsmouth market, which account for almost 50% of the entire New Hampshire Seacoast. The Pease Tradeport has always been the best barometer of the Seacoast office market. With a mix of national, regional, and local office tenants, the Tradeport is the region’s economic engine. This past December, we estimated that most office buildings at Pease were 10-20% occupied. A quick update now suggests that 30-50% of those same buildings are occupied, with some buildings at 100%. On December 31st 2020, the Tradeport’s vacancy rate had increased from 5.6% in 2019 to 9.5%. As of August 1st 2021, vacancy has increased to 16.2%.
The Portsmouth office market (not including Pease) has fared a bit better. On December 31st 2020, the vacancy rate was 7.0% – an increase from 4.7% in 2019. As of July 1st 2021, the vacancy rate stands at 8.9%. It is important to note that The Boulos Company includes sublease space in our vacancy totals, which accounts for roughly 40% of all Pease vacancy. This high amount of sublease space makes sense, as those companies – predominantly national companies – have already decided to downsize and put their space on the market.
We have continued to see office vacancy rates increase since COVID started, however, the rates are not nearly as high as most feared. We have also seen demand increase dramatically since the beginning of June. Properties that might have seen only one or two showings over the previous six months have had two or three times the amount of interest recently. While COVID concerns are still present, the majority of people have already returned to normal, and businesses have started to return to normal as well – or plan to do so in the near future. These are all good sign for the Seacoast and we hope that the overall office market will weather the COVID storm better than other, more metropolitan markets, like Boston – which could take years to recover.