The Salem submarket saw the biggest decrease in vacancy, by 3.5%, year-over-year. Two significant sales in this submarket occurred in Derry. Tri-K Industries purchased a 40,000 SF warehouse/distribution building at 20 A Street for $2.075M. Down the street, a 23,000 SF R&D/flex building at 6 A Street sold to Tetler & Co. of Hampstead for $1.075M. Both of these buildings were on the market and vacant for several years.
In Salem, Scott Electronics purchased half of the building at 5 Industrial Way. The company outgrew its current home at 33 Northwestern Drive, a 20,800 SF building, and could not expand on the lot. In the last year, the company added more than 34 new employees and plans to continue its growth.
The Nashua submarket saw substantial movement as well, resulting in a drop in vacancy. At 85 Northwest Boulevard in Nashua, about 24,400 SF leased this quarter bringing the building to full occupancy. DAPR Engineering leased 19,400 SF and Impact Science & Tech expanded into the remaining space.
Also in the Nashua submarket, Spraying Systems Co. moved its East Coast operations from a 40,000 SF building at 22 Flagstone Drive in Hudson to a 120,000 SF building at 243 DW Highway in Merrimack. The building was purchased at the end of December 2016, but sat vacant as it underwent major renovations. Now that renovations are complete, the company is tripling its footprint and plans on hiring more employees.
Even though the industrial market is tight and inventory for small or medium size space is scarce, large blocks of 100,000 to 400,000+ SF are still available in a few locations in the State. The former FW Webb building in Amherst offers large blocks of 80,000 to 389,000 SF, leaving smaller tenant’s needs unmet. There is also a large amount of space at the former BJs Wholesale Club in Hooksett, which was purchased for $6.55M, and reclassified from retail into traditional industrial. The new owner plans to lease out the 109,000 SF building as warehouse/distribution space, but it is unclear if there is the option to subdivide.
Something will have to “give” if demand continues. If you leave out properties that have reached, or are reaching, functional obsolescence, industrial vacancy rates are nearing the point of full capacity. There are only so many larger facilities that can be subdivided and repositioned to meet the market’s average size – typically 10,000 to 20,000 SF. Users that can and want to own real estate will continue to drive a reasonable amount of construction in the State. However, the market is becoming very challenging for the large number of users looking to lease space. Either lease rates will have to increase to the point that construction of multi-tenant facilities becomes economically feasible, or tenants will have to become owners (assuming they can), or look to other markets to solve their space needs. It’s a good problem to have, but one that has to be solved in order for the State to continue to prosper.