With each new year, our brokerage teams closely evaluate their markets and critically assess the use, quality, and amenities of each property. This thorough reevaluation led to a recategorization of a portion of both office and industrial buildings. For example, moving a Warehouse/Distribution to General Industrial. It also contributed to the removal of buildings if the use changed, for instance, from R&D/Flex to medical.
In the industrial market, vacancy has gradually dropped to 5.3% and asking lease rates increased slightly to $6.92 NNN. We saw the largest decrease in vacancy in the General Industrial category, which may have been due to a few large deals in Q1. In Londonderry, Kluber Lubrication took 65,000± SF at 4 Kitty Hawk Landing and Arrow Tru-Line Inc leased 26,000± SF, opening their first NH location, at 15 Liberty Drive. At 131 Broadway in Dover, Acadia Kitchens subleased a 14,000± SF space formerly leased to a cabinet making shop.
As vacancy continues to drop, we’ve noticed that the majority of the remaining available space in the market is obsolete or out-of-favor property types. We are seeing many users who need higher clear heights, better connectivity, and more power, which most of the available space is lacking.
With limited inventory and even less “in demand” space available for lease, new “spec” or “near spec” (50% pre-leased and 50% to-be-leased) construction should be gearing up. That, however, is not the case. While there are some “big-box” single tenant, net leased projects coming out of the ground near the Manchester-Boston Regional Airport, those few projects are the exception, not the rule, in New Hampshire.
High costs for land, site costs, building costs, etc., combined with near stagnant lease rates, are the main reasons for little new spec construction. Owners are going to have to start weighing the cost of new construction versus the cost to upgrade their buildings to attract tenants that are actively looking in the market.