Recent Colliers report shows increase in hybrid work environments with flex work spaces

With companies still right-sizing their building needs in the post-pandemic era of at-home and hybrid workers, New Hampshire commercial office space has seen a significant rise in its vacancy rate.

A third quarter report released Nov. 29, covering July, August and September from Colliers International, shows an average vacancy rate of 11% across office buildings and condominiums in the state, with Colliers analyst Kristie Russell saying the high-end office space in particular “has seen the most significant jump in its vacancy rate this year.”

“Similar to most of the United States, it does not come as a surprise to have tenants downsizing or leaving office space,” said Russell.

A July report from the McKinsey Global Institute declares: “Hybrid work is here to stay.”

Meanwhile, industrial space in New Hampshire (which encompasses manufacturing, warehouse and what’s called “flex/R&D”) is at healthy levels across the Granite State, according to a separate report from Colliers, a global commercial real estate broker with offices in Portsmouth and Manchester.

Russell compiles two reports each quarter — one looking at office building trends in New Hampshire, the other assessing industrial space. The Colliers report denotes six submarkets: Concord, Manchester, Nashua, Salem, Portsmouth and Dover.

Of note, according to Russell, is that while office vacancy rates have grown, so have the asking per square foot (PSF) lease rates.

“Even though the vacancy rate continued to rise, both the direct and sublease asking rates increased by 3.7% year-over-year,” Russell said in her market summary. “The direct asking rate finished the quarter at $21.05 modified gross, with the largest shifts in the Concord (5.6%), Portsmouth (9.4%) and Salem (5.9%) submarkets.”

Going forward, as space remains on the market, Russell said landlords may have to “make adjustments,” such as offering shorter leases, asking for lower PSF rates and other inducements.

Her office report noted several instances of office downsizing:

In the Salem submarket, ADP downsized to 27,000 square feet and leaving its 113,000-square-foot building. Pegasystems left the market, according to Russell, and vacating 33,000 square feet.

In the Portsmouth submarket, which includes the Pease International Tradeport, Bottomline Technologies left its 101,000-square-foot corporate headquarters on Corporate Drive. It currently occupies about 12,000 square feet nearby at the Tradeport in an office suite at 100 International Drive.

As one observer of the commercial real estate market observed: “They never really came back after COVID.”

And they’re not alone.

The new workplace dynamic

The COVID-19 pandemic shifted the workplace dynamic: People worked from home to avoid exposure to the fast-spreading, sometimes deadly virus. And they liked the safety and flexibility of working from home, so much so that even after the pandemic eased, there wasn’t an overwhelming desire by workers to return to the office.

Thus, a hybrid workforce emerged, a mix of at-home workers and full-time office workers, and workers who come in a few times a week. Accommodating that new workforce requires less space.

Globally, according to the McKinsey report — entitled “Empty Spaces and Hybrid Places” — office attendance is 30% below what it was before the pandemic.

The report projects that, even by 2030, demand for office space will still be below pre-pandemic levels. “Falling demand will also result in a surplus of office space, particularly in the lower-quality and older buildings that the real estate industry calls Class B and Class C,” it said.

Here are the overall occupancy office rates in each of the New Hampshire submarkets, in descending order, encompassing Class A, B and C spaces:

• Dover 96.6%

• Concord 92.2%

• Manchester 91.8%

• Nashua 87.3%

• Portsmouth 85.5%

• Salem 71.8%

One of the largest deals to impact the vacancy rate was the sale of 100 Education Way in Dover,” Russell reported. “The 99,675-square-foot, Class B office building was purchased by Northeast Credit Union for $7.5 million ($75 PSF) in September. This property became vacant in 2021, after Cognia left the property. Now the facility will undergo major renovations for Northeast Credit Union to relocate its headquarters from Portsmouth into the building.” (Cognia is the former Measured Progress.)

On the industrial side of the commercial property ledger, Russell describes the market as “healthy with more companies looking to move into the area and many companies looking to expand.”

Two signs point to this healthy environment for industrial space, according to Russell: relative stability in the vacancy rate with modest growth of industrial space availability in the last year and per-square-foot rent increases.

“The market is far from leveling out,” said Russell.

Latest industry changes

Among the expanding companies is Optima Dermatology Partners, a tenant in part of the 74,300-square-foot flex building at 111 New Hampshire Avenue in the Pease International Tradeport. That facility was originally built in 2005 to house the Seacoast Media Group of newspapers that includes the Portsmouth Herald.

The building, a mix of white collar and industrial flex space, was home to the publisher’s editorial, advertising and production departments. The current owner, Gannett, downsized the operation, shuttering the press, moving the printing of the area’s newspapers out of state, and selling the building to the Kane Co. in September for $6.15 million.

Optima, which is opening dermatological offices throughout the region, moved its headquarters to Pease from a smaller space on Heritage Drive in Portsmouth.

According to Russell, 80% of the building — mostly the manufacturing space — is available for lease.

The statewide vacancy rate averages out at about 3%. But some submarkets have a vacancy rate that is near zero.

The Portsmouth submarket vacancy rate, for example, is 0.9%, meaning its total industrial inventory of 13,586,299 square feet is 99.1% occupied.

Here are the occupancy rates for the other submarkets, in descending order:

• Dover 97.9%

• Manchester 97.5%

• Nashua 97.3%

• Concord 95.1%

• Salem 89.5%

The Colliers report cites other significant developments in the last quarter:

• The sale of a 118,000-square-foot industrial building at 103 Temple Street in Nashua.

• The lease of 102,000-square-feet at 100 New Hampshire Avenue at the Tradeport in Portsmouth.

• The lease of 59,000-square-feet on 10 Ashleigh Drive in Derry.

• The sale of 56,000-square-feet at 74 Industrial Park Road in Dover.

• The lease of 41,000-square-feet at 27 Airport Road in Nashua.

Office attendance is 30% below what it was pre-pandemic. By 2030, demand for office space will still be below pre-pandemic levels.