Each Spring I conduct
a fairly exhaustive survey of the supply of office space in Portsmouth. This
was the eighth year of my study. The survey, conducted from late March to early
April, divides the city into three distinct areas: Downtown, Pease (which
includes a small portion of Newington) and the rest of Portsmouth (“the
suburbs”). The survey is comprehensive, but has excluded complexes with less
than 10,000 SF of office space, the office portion of industrial facilities,
loft or studio space, schools (except schools occupying office buildings) and
first floor retail occupied by "service" office users such as real
estate agencies or mortgage companies.
This
year’s results, as well as those from the prior seven years, can be found here:
2007 results.
Overall, these tables show little change. The market continues to improve and
developers appear to be exercising restraint.
There
are a few noteworthy changes though. For example, only 6.1% of the city’s
existing space was empty at the time of my survey. This is a decrease from the
prior year, when it was 7.8%, and from 2005, when it was 8.3%.
The
drop in vacancy is due largely to the limited amount of new construction over
the past couple of years. Increases in interest rates and construction costs
played a key role in the slowed construction. Over the past year, the total
amount of office space increased by only 51,000± SF, to 3,514,869. This is
primarily the result of the construction of the second phase of 100
International Drive.
The
lack of new construction, combined with an overall healthy economy, resulted in
the ongoing absorption of existing office space. In fact, in spite of the
vagaries of the national and regional economies, this survey has shown positive
net absorption every year. Significant increases in occupancy downtown were
seen this year at 155 Fleet Street, 30 Penhallow and 48 Congress (a total
increase of 37,171 SF). Noteworthy absorption in the suburbs occurred at the
new 155 Borthwick and occupancy by Northeast Credit Union of their new addition
(a total increase of 74,400 SF). Finally, at Pease, many buildings saw
increases totaling nearly 92,000 SF.
I
should also mention that the vacancy figures are skewed somewhat by the
inclusion of some space that is technically off the market. These are the top
floor of Harbour Place (slated for conversion to residential), the former
Portsmouth Herald building (slated for demolition) and 30 Raynes Avenue (also
slated for demolition). In addition, the entire top floor of Franklin Block is
vacant while the owner constructs a fourth floor within what was the third
floor’s very high ceiling. These buildings account for over 80,000 SF of
reported empty space downtown. If these four spaces are excluded from the
calculations here, the amount of existing empty office space downtown drops to
3.3%, and citywide, the average becomes only 3.9%.
There
was a also small decline in the amount of office space advertised as available
(8.8% in 2006 versus 7.2% in 2007), but this the result of the continued
absorption, lack of new construction and healthy economy.
Finally,
there is now 711,000 additional square feet of new office space proposed. For
all eight years of this study, there has been an average of 652,000 SF proposed
at the time of each survey, so the current situation is nothing particularly
new. Also, from 2000 to 2007, the total amount of office space has increased at
a rate of roughly 100,000 SF per year, although prior to 2007, a total of
approximately 1,577,000 SF has been proposed. Therefore, historically at least,
we should not expect all that is proposed to actually be built.
Since
the results of the past few years suggest that we are in the early phases of
another growth cycle, it seems likely that a number of the proposed projects
will come to fruition in the next year or two. As I said last year, at nearly
3,500,000 SF, we are an extremely small market area and it only takes a small
amount of extra space to tip the balance. Therefore, caution and continued
vigilance is still well advised, but overall, the outlook for the market
appears very positive.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Steven H. Berg, MAI, SRA lives in
Portsmouth and is the owner of Sargent Consulting, Ltd. He is a graduate of
Connecticut College, where he earned a Bachelor of Arts degree, cum laude,
majoring in economics and sociology. Steven has been appraising a variety of
property types in New Hampshire’s Seacoast area since 1987. He specializes in
providing consulting services and litigation support and has amassed
considerable classroom education on a wide range of topics. Steven is both a
residential and general member of the Appraisal Institute. In addition, he is
Chair of the New Hampshire Real Estate Appraiser Board, a member of the
Portsmouth Housing Endowment Fund Advisory Committee, a former member of the
Portsmouth Zoning Board of Adjustment, and is on the board of The Portsmouth
Economic Development Loan Program.