Christian Stallkamp / February 8, 2022
The numbers are in, and the Seacoast New Hampshire office vacancy rate remained relatively flat from 2020. The year-end 2021 average vacancy rate is 10.9% versus 10.6% in 2020, while the 2019 “pre-COVID” vacancy rate was 7.3%. For comparison, the national office vacancy rates were 9.6% pre-COVID in 2019 while increasing to 10.0% and to 12.2%* in 2020 and 2021, respectively.
The good news is that the Seacoast office market is below the national average for vacancy and appears, at this point, to have weathered the COVID storm. This is great news, as many real estate professionals had predicted much higher vacancy rates by now. Having said this, we still don’t know the long-term implications to the office market, as many companies continue to work remotely.
Average asking lease rates increased from $14.25/SF NNN in 2020 to $14.47/SF NNN in 2021. The difference shows that the higher priced markets such as Portsmouth and the Pease Tradeport are experiencing higher vacancy than years past, which is then reflected in the overall Seacoast average.
There are still many unknowns as we go into our third year with COVID-19. This murkiness has tenants renewing their leases short term and taking a “wait and see” approach. Other companies have continued to “mothball” their space with the expectation that when the pandemic ends, their employees can return to the office. Still others, who have term left on their lease, may decide to vacate or downsize as their lease terminates over the coming year.
It will be interesting to see how the office market transforms as we begin to navigate out of the pandemic.
The demand for smaller office footprints in the 2,500 SF to 5,000 SF range is stronger than larger office footprints due to the willingness to downsize from companies of all sizes. This size range is easier for companies to commit to financially than larger space.
Hoteling is a term that has become popular as offices adopt a hybrid workplace strategy. The term refers to employees who split their time between working from home and being in the office. The employees can reserve workspace on a specific day and time, much like booking a hotel room. Employers need less office space under this model.
Like the pre-COVID office market, there still is a lack of larger office inventory available. Fueled by the strong demand for industrial product, we may see larger office space converted for industrial use. One example is the 100,000± SF John Hancock office building located at 164 Corporate Drive at the Pease Tradeport. It is likely that this former industrial/warehouse building will be converted back to its original use.
Nationally, working from home is trending down, but is still popular. Prior to COVID’s onset, 6% of the national workforce worked from home. This rate spiked to a high of 35% in the thick of the COVID outbreak, and now hovers around 13%. The ability to work remotely appears to be here to stay. From my conversations with employers, it has become a vital benefit to attract and hire employees in this tight labor market.
Companies will continue to invest in technology to make it easier for their employees to seamlessly work between their company office and their home office. Programs such as Zoom, Slack, and Microsoft Teams have provided
companies with tools necessary to make remote work viable for their employees. This trend is here to stay!
Christian Stallkamp, Senior Broker