NORTHEAST SNAPSHOT, NOVEMBER 2006
New Hampshire Seacoast Office Market
The current trend in office development is primarily for build-to-suit or owner-occupied developments. Unlike 6 years ago when developers were building on speculation due to the strong high-tech market, many developers are now being more conservative. Lenders are becoming more cautious and requiring that new developments are 40 to 50 percent pre-leased. There are still some speculative projects, but they are smaller in size and only in premier office locations.
The Pease International Tradeport, located in Portsmouth and Newington, continues to be the driving force for new office development in the Seacoast of New Hampshire. This former military base was converted to a business park in the early 1990s and has been thriving with more than 750,000 square feet of new office space. The most active developer at Pease has been Two International Group, which has developed some of the more high-profile Class A buildings, including Two International Drive, One New Hampshire Avenue and 100 International Drive.
Downtown Portsmouth is another area that has seen recent office development or substantial office renovations. The new Ocean National Bank building on State Street, 22-28 Deer Street and 16 Congress Street are a few office projects that have added new office space to the downtown market. There are also additional downtown office developments in the initial stages. Several of these new developments may include retail and residential components.
The majority of development, as stated above, is in the Portsmouth market. The primary reason for this is its proximity to Interstate 95, Route 101 and the Spaulding Turnpike, which allows for employees to commute from southern Maine, western New Hampshire and northern Massachusetts. Portsmouth is also the largest city on the Seacoast and offers many services, cultural activities, retail and restaurants, which are attractive to office tenants.
There haven’t been many new developers to the Seacoast market as most projects are being done by local development companies. However, one new developer to the area is Astoria Properties. Astoria developed a 41,000-square-foot condominium office building in Portsmouth in 2004. All 15 condo units sold prior to occupancy, with all but one unit purchased by owner occupants. Astoria is now developing a similar project in the neighboring town of Newington. This 32,000-square-foot development has also been a success for Astoria.
Liberty Mutual has been one tenant who continues to expand in the Seacoast. Within the past few years Liberty has leased substantial space at 100 Domain Drive in Exeter, and 273 Corporate Drive in Portsmouth. In addition, Liberty committed to a 75,000-square-foot build-to-suit at 207 International Drive in Portsmouth and has plans to expand its own office campus in Dover by 350,000 square feet.
Loftware recently leased 38,500 square feet at 166 Corporate Drive in Pease, as well as Powerspan and Liberty Mutual, which each leased 24,000 square feet at 100 International Drive. Seacoast Dialysis has leased 9,000 square feet at 155 Borthwick Avenue and the law firm McLane Graf Raulerson & Middleton recently leased 5,000 square feet at 100 Market Street in downtown Portsmouth.
Lease rates range from $15 per square foot to $18 per square foot triple-net lease at the Pease Tradeport and the suburbs of Portsmouth. Downtown Class A lease rates tend to be slightly higher ranging from $18 per square foot to $22 per square foot triple net lease. The rest of the Seacoast market is typically between $14 per square foot to $16 per square foot for Class A product.
As of December 31, 2005, the Seacoast vacancy rate was 16.8 percent for Class A and B properties. The largest market with 3.1 million square feet is Portsmouth/Pease, which has a healthy 10 percent vacancy rate.
The Portsmouth/Pease market will continue to see the majority of new office developments with the widening completion of Route 101 connecting the Seacoast with Manchester, New Hampshire’s largest city. This new route will likely make developers view this corridor as an opportunity for future office growth.
In general, the office market has bounced back nicely from the high-tech downturn that the Seacoast experienced in 2001 and 2002. Not unlike many tech dependent markets, Portsmouth experienced a substantial increase in the vacancy rate when a substantial amount of sublease space flooded the market, driving down lease rates across the board. During the past few years, lease rates have continued a steady rise and vacancies have decreased, especially sublease space. We are optimistic that the Seacoast office market will continue to remain healthy, as it will always be an attractive market for companies.
— Kent White is a broker with CBRE/New England in New Hampshire.
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