I’ll begin by summarizing the 2022 mid-year evaluation which isn’t too dissimilar from 2021. I’m comfortable to report, the general state of the southern New Hampshire business actual property market stays sturdy with just a few exceptions. Sectors of the market that proceed to outperform are industrial, multifamily and medical workplace. Laggers out there proceed to be non-grocery retailer anchored retail, {and professional} workplace.
The southern New Hampshire industrial market is experiencing excessive demand for prime bay warehouse and flex manufacturing house. Tenants looking out to hire house and customers trying purchase or construct house continues to maintain emptiness charges beneath their historic averages which creates upward strain on NNN rents and constructing values. This development is predicted to proceed by means of the remainder of 2022 and into early 2023.
I not too long ago attended a Counselors of Actual Property assembly at 160 Federal St., Boston. (Our first mixture in-person/Zoom assembly because the pandemic. I’m hopeful this can be a signal of a brand new regular versus simply Zoom.) The main target of our visitor speaker was an replace on the Boston industrial sector. I’d like to go with Chris Skeffington, EVP at CBRE who offered the data, he offered a superb high-level view of the Boston industrial market, which I’ve summarized beneath.
1. Demand for Boston industrial house is at 5X stock
2. Southern New Hampshire is considered as a suburb of Boston
3. Southern New Hampshire doesn’t have sufficient present stock to fulfill this demand
4. Emptiness charges are at historic lows
5. Rents are at historic highs
6. Proximity to the Boston market is essential, as demand for direct to client transport will increase. The “windshield price” is the financial driver to holding distribution as near the inhabitants base as potential.
New Hampshire continues to learn from its proximaty to Boston, which from a drive time perspective, is extra accessible immediately than it has ever been because of the widening of the I-93 hall. The 4 lane growth of I-93, accomplished through the COVID-19 pandemic, touring north/south from Manchester to the Massachusetts border was cash effectively spent by the state of New Hampshire because it considerably reduces drive occasions making southern New Hampshire a viable various for distribution into the extra dense inhabitants facilities of Massachusetts.
As for the workplace market, we’re starting to see cracks in what was a reasonably sturdy preforming market through the pandemic. Throughout the pandemic, tenants continued to pay hire at the same time as house sat vacant they usually didn’t give again house as shortly as some had predicted. Nonetheless, with the beginning of three and 5 yr lease phrases beginning to roll over, tenants at the moment are adjusting to a put up pandemic world. Which is able to most probably scale back their workplace footprint because the earn a living from home (WFH), or some hybrid of WFH, turns into a actuality for sure white collar employees.
The jury continues to be out on how a lot the WFH development will have an effect on the long run demand for workplace house however one factor appears sure, companies are hesitant to pressure workers again to the workplace for concern of shedding key workers. Lately, in an interview on the New York Instances’ Dealbook coverage discussion board in Washington DC, Howard Shultz, CEO of Starbucks a proponent of returning to workplace has determined to not mandate a return to work. Recognizing that there’s a generational distinction in immediately’s workforce they usually have determined to supply versatile choices for eligible company workers that embrace distant positions and hybrid positions.
We’re seeing this development play out regionally as employers re-evaluate how finest to run their enterprise and handle/retain workers. Sadly for workplace landlords, this might take years to kind itself out leaving them with greater than common emptiness and a discount in NOI for the foreseeable future. Some landlords are responding to the weak spot in workplace demand by proactively taking steps to cut back their danger by changing a few of their workplace house to residential. For instance, Brady Sullivan Properties acquired approval to transform eight flooring of their 20-story class A workplace tower in downtown Manchester into 155 market-rate flats. They’ve additionally been slowly changing a few of their downtown workplace mill house to residential. Along with the workplace conversions, decrease grade C/D buildings are being razed in favor of growing a lot wanted multifamily flats. The weak spot within the southern New Hampshire workplace market is predicted to proceed all through 2022 and effectively into 2023 as provide is outpacing demand. The shift in demographics couple with the WFH development begs the query, have we reached peak workplace? I consider we have now.
Mike Harrington, CRE, CCIM, is dealer/principal with Harrington & Firm, Manchester, N.H.
