‘Connection to that physical space’

Retail, commercial, industrial real estate markets stay steady in Upper Valley

By PATRICK O’GR ADY Valley News Correspondent

The commercial real estate market in the Upper Valley is a bit of a mixed bag.

While the industrial sector is the strongest, office and retail spaces are also holding their own, as there is more interest in space in the wake of the COVID-19 pandemic.

“The industrial market, with lots of demand and limited supply, is extremely tight,”said Chip Brown, principal broker with Brown Commercial Realty in Hanover. “Current occupancy is close to 99%. Local businesses are growing and looking for available space that simply is not there.”

Brown also said contributing to that strong industrial market are high construction costs, limited availability of appropriately zoned land and long lead times to build, further constraining the market.

“Accordingly, rents and values have been rising,”Brown said.

Yves Bradley, a partner with Vt. Commercial, a statewide real estate group that specializes in commercial properties, also noted the strength of the industrial sector in Vermont.

“The industrial sector used to be the weakest, but now it is the strongest,”Bradley said, adding that the pandemic created a big demand for companies looking to store inventory. “There is a very low vacancy rate of industrial space around the state. Right now, if you own an industrial building you will get top dollar because rents have gone up 20% to 25%.”

The New Hampshire Commercial Investment Board of Realtors tracks commercial real estate trends statewide. Chris Norwood, of the Norwood Group in Bedford, N.H., who served as president of the New Hampshire Commercial Investment Board of Realtors, said that, generally speaking, industrial is very strong across existing buildings and land. He believes supply chain shortages and shipping bottlenecks during COVID are the prime drivers of the need for industrial space in the state.

“There were a number of industries that got caught and they are saying ‘Never again. So I will add 20,000 square feet to complement what I have and put two months of extra inventory on the shelf,’”Norwood said. “ ‘I will have supply.’ That is not everybody, but it is a driving force for some.”

Brown said in the Upper Valley, the commercial real estate market, despite being relatively small in size, has remained steady and healthy over many years. He said there is a strong employment base, anchored by Dartmouth College, Dartmouth Health and about 1.5 million square feet of bio-tech and high-tech businesses.

“According to Granite Stats/Economic Labor Market Information Bureau, the Lebanon NH-VT Micropolitan statistical area has averaged about 1.5% unemployment since the beginning of 2023, with 0.9% unemployment as of April 2023,”Brown wrote in an email. “Although the hospital has been tightening their belt, the large majority of businesses in the area have been steady or growing.”Regarding office space, Brown said companies are finding “better quality or right-sized spaces.”

“How much occupancy will be affected by the new hybrid and remote work models is yet to be fully determined, but at least to date, the overall office occupancy is about 90%,”he said. “Interestingly enough, this is slightly better than preCOVID. Office rents and values have remained steady.”

Jane Osgood and Ted Hilles own State and Main Associates in Windsor, a property management company with more than a dozen properties in Windsor, Norwich, West Lebanon, Lebanon and other communities. Osgood said as of late, the market appears healthier.

“We are seeing an upward trend in demand in both commercial and residential (apartments),” Osgood said. “The majority of our business is in commercial and we have seen an uptick in interest with people looking for commercial space.”

The drop in demand during COVID seems to be turning around, Osgood added. “It is a nice surprise.”

Bradley said he is seeing the office space market for less than 5,000 square feet “relatively active”with some looking for more space or perhaps a nicer location. Conversely, larger spaces are not seeing that sort of demand and are having a harder time, he added.

Trying to sell an office building now can be difficult, Bradley said, because of a high vacancy rate in many areas.

“There is uncertainty right now in that market,”he said.

Overall, Bradley said the commercial market has traditionally active areas throughout the state.

“The Upper Valley remains a busy place,” Bradley said, adding that in some markets, such as Hanover, landlords can command high rents.

Brown said an apartment market that has been under-supplied for many years “is finally getting re-balanced.”

“In Lebanon alone, there are about 1,600 units that either just came on-line or are expected to come on-line within the next couple years. More units are expected in neighboring towns of Hanover, White River Junction, and Enfield,” Brown said. “This will translate into more people spending less time getting to work, and more time eating, shopping and having fun locally — making for a more vibrant and dynamic Upper Valley.”

Norwood, who serves on the board of directors for New Hampshire Housing Finance Authority, said he has seen a lot of acquisition activity for multi-family dwellings both large and small as the state emphasizes programs such as the low-income tax credits to increase the number of housing units. But that activity is being slowed by rising interest rates, Norwood added, meaning higher earnings on equity is paying off debt. Also affecting the housing market are construction prices, which have increased since the pandemic.

Stimulus programs such as InvestNH and low-income tax credits are helping investors blunt the effects of increased interest rates and soaring construction costs.

“We need every one of those dollars to get some of these projects off the ground,”Nor wood said.

Office space in the Granite State appears to quell the fears of working from home during COVID would become a permanent change.

“We all thought it would be the death of office space and no one would be going back,”Nor wood said.

But a national movement, led by technology companies, shows that employees need a “connection to a physical space,”he said.

Bradley said he is seeing a fair amount of office space as some companies downsize and not a lot of new business is coming into the state.

“The office market I think is worrisome,” Bradley said.

For retail, Bradley sees a bit of a “resurgence” for the big box retailers with pedestrian shopping centers having a harder time bringing back customers amid the growing popularity of online shopping.

Brown said the Upper Valley’s retail sector is starting to wake up after being dampened by “online shopping, the pandemic, and (the departure of) older ailing anchors such as Kmart and JCPenney ’s.”

He noted that Route 12A has seen “a significant lift”with the new Target in the former Kmart, interest in the JCPenney space and other activity such as the upcoming openings of Jersey Mike’s, T-Mobile at Staples Plaza, Convenient MD at The Citizens Bank building, and new leases at North Country Plaza.

“Interest in downtown retail has also picked up with both local and national stores looking around in Hanover, White River Junction and L ebanon,”Brown said.

Patrick O’Gradycan bereachedatpogclmt@ gmail.com.