Last year at this time, we were writing about the uncertain direction of the office market due to many companies moving to a work-from-home platform. The office market has begun to establish its direction for the immediate future. Even though more companies have called employees back to the office, there has been a dramatic increase in the overall vacancy rate statewide.
At the end of the second quarter, the overall vacancy rate in the office market was at 10.2%, 210 basis points higher than last year. The biggest vacancy climb was in the Class A category, rising by 3.4% year-over-year. This increase is due to two large tenants leaving the Concord submarket and some new construction projects creating first-generation vacancies in the Portsmouth submarket.
In the Concord submarket, Lincoln Financial vacated 107,000 SF at 1 Granite Place in Concord and Cigna left 97,200 SF at 2 College Park Drive in Hooksett. The Class A vacancy increased by 174,000 SF in the Portsmouth submarket. The largest opening was created by Liberty Mutual leaving 56,800 SF at 100 Domain Drive in Exeter. In Portsmouth, Wheelabrator Technologies vacated 29,650 SF at 100 Arboretum Drive when they moved into 90 Arboretum. Even with Wheelabrator moving, the newly constructed building at 90 Arboretum has 22,600 SF of unoccupied space. Another new construction project affecting the vacancy rate is 145 Maplewood Avenue. At the end of the quarter, there was roughly 32,000 SF available for lease or sublease in this 71,400 SF downtown Class A building.
With vacancy rates still climbing, rents are finally leveling out. Rents rose by only 0.2% ($0.04 PSF) since last year, ending the quarter at $18.94 MG. But, looking over the past two quarters, rents have started declining, which is what is expected with the vacancy rate climbing. On average, the rents dropped by $0.34, or 1.8% since January.
With the rising vacancy rates, some investors took advantage of current conditions, acquiring properties at below market value this quarter. This includes the Chase Block in downtown Manchester, 62% vacant at the time of the sale, which sold for $1.8 million ($38.30 PSF) to Elm Grove Realty. Brady Sullivan Properties purchased two vacant buildings – 2 College Park Drive in Hooksett for $2.5 million ($25.72 PSF) and the south tower and land at 1 Granite Place in Concord for $3.4 million ($31.75 PSF).
At Colliers, we internally track over 23.8 million SF of office space across 6 submarkets. Our inventory includes buildings and condominiums 10,000+ SF and are classified as Class A, B, or C.
