Seacoast Industrial Market 2024

By Kent White | Principal Broker, Partner

Over the past 3-5 years, the industrial and warehouse sector has been the dominant force in the commercial real estate landscape, not only in the New Hampshire Seacoast region but also on a national scale. While other commercial segments like the office market have experienced setbacks, the industrial market has exhibited sustained vigor, characterized by high demand, limited inventory, and rising lease rates. This trend carried into 2023, although we began to witness a modest decline in demand during the third quarter, potentially signaling a stabilization or softening of the industrial market in 2024.

Average Industrial Vacancy Rates:

The industrial vacancy rate in the Seacoast area in 2023 saw a slight uptick, climbing from 2.1% in 2022 to 2.9%. It’s important to note that even with this slight increase, vacancy rates remain historically low, offering limited choices to tenants seeking space. This holds true across all size categories, from small 2,000 to 4,000± SF condominium units to larger 50,000+ SF industrial and warehouse properties. While vacancy has remained relatively steady, the overwhelming demand that characterized the Seacoast, particularly since the onset of the Covid-19 pandemic in the spring of 2020, has somewhat subsided. In previous years, high-quality industrial spaces hitting the market would attract immediate interest from multiple tenants, with most vacancies being leased within 1-3 months. However, over the past six months, some available spaces that would have quickly found occupants now linger on the market.

Average Industrial Vacancy Rates:

For the first time since 2013, we observed a drop in the average industrial asking lease rates, declining from $11.64/SF NNN (Triple Net) in 2022 to $10.95/SF NNN in 2023. While this may seem counterintuitive given the low vacancy rates, it’s worth noting that a single large building can sway the average up or down, however, that is not the case in 2023. Although this year’s data shows a slight decrease, the average asking rent remains considerably higher than the average of $6.25/SF NNN in 2019. This surge in rents during the start of Covid-19 was primarily driven by intense demand and tenants’ willingness to pay premium prices to secure space, compounded by a 30%-40% increase in new construction costs, making rents exceeding $14.00/SF NNN for new construction unattainable for most businesses. Notably, during the fourth quarter of 2023, a few properties that had been on the market for six months or longer began to reduce their asking lease rates. This has not been seen in years, as most landlords had been able to continuously raise rent to the historic rents of today.

Looking Ahead to 2024:

What do these trends imply for the industrial market in 2024? To answer this question, we must consider the broader context. The rapid escalation of rents since the onset of Covid-19 was unsustainable, and at some point, rents were bound to stabilize, if not soften. As mentioned earlier, asking rents increased by nearly 90% from 2019 to 2022. To put this into perspective, industrial rents increased by only 18.6% from 2003 to 2019 ($5.27/SF NNN to $6.25/SF NNN). Moreover, the unprecedented demand driven by the pandemic induced inflation, has softened while The Federal Reserve has taken steps to combat inflation by raising interest rates at the fastest pace since the 1980s.

With these considerations in mind, we anticipate a stabilization of the industrial market in 2024. Rents are likely to remain relatively steady, and vacancy rates will stay low. However, available spaces may take longer to lease. Tenants should have a few more options, and most new construction projects will likely be built-to-suit, as developers exercise caution in speculative building.

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