REAL ESTATE

Signs indicate commercial space demand rising

Signs point to a strong year in the Seacoast commercial real estate market. Demand for space continues to rise out of the dot.com depression earlier this decade with three market segments leading the way. Small industrial spaces, retail space in downtown Portsmouth and medical offices are top items, according to area brokers. "Smaller 5,000- to 10,000-square-foot industrial spaces are very hot," said Kent White, a broker with CB Richard Ellis in Portsmouth.

CBRE's market analysis shows a commercial real estate recovery from 2003 to 2004 and White said those trends continued through 2005. Overall vacancy rates in the Seacoast office market decreased from 17 percent in 2003 to 12.5 percent in 2004. However, 2.5 percent of this decrease is attributed to the demolition and reclassification of the Portsmouth Circle Business Center that will become The Home Depot's new location.

"Both office and industrial markets have strengthened and stabilized," White said. "I expect to see both continue to see lease rates and lease rate prices increase."

Pease International Tradeport

Pease International Tradeport offers proof that demand for space is trending upward. Lonza Biologics is undertaking a 250,000-square-foot expansion that could create up to 400 new jobs. The Switzerland-based pharmaceutical manufacturer completed a 280,000-square-foot addition in 2004. Its latest project will bring its Pease space to 600,000 square feet. "It's a tremendous statement for Lonza to do its expansion and investment here," said David Mullen, deputy director of Pease Development Authority. Loftware Inc., a Maine company specializes in the growing industry of radio frequency identification (RFID) will relocate to 40,000 square feet within one of the vacant Flextronics buildings at Pease.

There was a total of 102,500 square feet in the three former Flextronics buildings prior to Loftware's sublease. The 206,000-square-foot Celestica building is leased but vacant. Mullen said office space at Pease is a different story. "Quite frankly, there are some spaces available, but any major office user would have to wait for new construction to occupy at Pease," he said. Two new buildings in the pipeline at 29 New Hampshire Ave. each offer 22,000 square feet. The first is scheduled to start this spring. Mullen said these spaces will meet demand from small businesses seeking to set up shop at Pease. "Thirty-five percent of the companies here have 10 employees or less, so it is a pretty good mix," Mullen said.

Borthwick Avenue

Demand for medical office space is best seen along Borthwick Avenue in Portsmouth. Katherine Kane, of The Kane Company in Portsmouth, said the local medical office market is less sensitive to ups and downs of the business cycle and is driven more by an area's population growth. The influx of residents to the Seacoast is seen in part through the expansion of existing doctors' practices and the creation of new ones. The Kane Company is the broker for the Millennium medical office park on Borthwick Avenue. The first of two 50,400-square-foot buildings is nearing completion. Both will offer heated underground parking, state-ofthe-art germ filtering HVAC systems, valet parking and an ambulance drop off area.

"We are seeing a good response to our development on Borthwick Avenue," Kane said. "We are over 50 percent leased in the first building and looking at the possibility of designing our second building as office condos." Kane said the flexibility of leasing vs. owning is important to physicians because fit-up of their spaces is a major investment for many doctors.

The Borthwick Avenue corridor is rapidly developing with the Millennium buildings, expanded Service Credit Union and the Griffin Park medical buildings across Route 33. The Griffin building on the Route 1 Bypass is zoned for office research, offers 1.8 upland acres and could have access to Borthwick Avenue. It is being offered for sale through CB Richard Ellis for $775,000. Proximity to Portsmouth Regional Hospital, availability of parking, ease and convenience to Interstate 95 and the state-of-the-art amenities enhance the attractiveness of the Millennium buildings and other Borthwick Avenue offerings, Kane said.

Downtown

Downtown Portsmouth continues to thrive in part because of a mix of spaces growing more diverse with additional new, larger properties including a major hotel, banks, restaurants and new retail offerings.

"What's nice is that it's not just leaning toward one market," said Lisa DeStefano of DeStefano Architects in Portsmouth. "When the market gets saturated we get into trouble further down the road." DeStefano, who designed the downtown Hilton Garden Inn and Harbour Hill condominiums, said development in the city is strengthened by zoning that encourages mixed uses. Portsmouth City Manager John Bohenko said a firstfloor retail component is vital for the downtown to remain vibrant. "We are getting a lot of condos in the downtown, which is fine," Bohenko said, "because people can walk to shopping, restaurants and entertainment venues."

Jeff Johnston is principal of Cathartes Private Investments, which owns Parade Mall, the 131-room Hilton Garden Inn and 21-unit Harbour Hill condominiums. He said future plans for the remainder of Parade Mall are in the works, but would also be mixed-use. "Portsmouth is such a diverse market," Johnston said. "On the residential side it's a lifestyle choice with proximity to so many amenities. From the hotel perspective it's kind of a unique market in that it's strong in tourism and in business."

Developer Tyler Rohrer of Backwater Holdings of Portsmouth, said residential condominiums are a sign that demand for commercial real estate will continue to be strong. "The Seacoast offers waterfront property tax free with the mountains and Boston one hour away and an affluent, young population," Rohrer said. Broker Bill Mouflouze has placed businesses downtown for decades. He said demand for small retail spaces is as strong as ever.

"I've got people looking for retail and no place to put them," Mouflouze said. While the downtown is expanding into the "northern tier" and Islington Street, Mouflouze said it may take a while before prospective business owners embrace these areas. "The Hilton might change Hanover Street a little bit, but I don't see it changing it a lot," Mouflouze said. "Deer Street is changing a little bit and may change more if the Sheraton expansion gets approved." Mouflouze remains unsold on Islington Street's potential. "I don't see how it's going to change significantly because it's dotted with houses and a couple of gas stations," he said. City officials are working to help prosperity come to Islington Street including a review of zoning along the street. "The Planning Board will take a look at the whole Islington corridor and how best to encourage live/work space, small businesses and retail," Bohenko said. Signs of life are present, including Caffe Kilim's coming location and the anticipated redevelopment of the Portsmouth Bookshop building at the corner of Islington and Bridge streets. City Planner David Holden said central business district zoning has been in place for some time on lower Islington Street and it's exciting to see development cross Maplewood Avenue.

Holden said developer King Weinstein recently received approval for his luxury condominiums project at the former Frank Jones Brewery, which could further draw businesses down Islington Street.