SIDE BARS

Office space is at its lowest vacancy rate since the eco-nomic doldrums of 2001, a remarkable trend given an un-abated construction in pockets of New Hampshire. That snapshot of the market, a 2006 first quarter report prepared by Cushman & Wakefield, singled out Portsmouth and Manchester as the top performers in the region.

New construction for office has recently been limited to the Seacoast, said Thomas P. Farrelly, executive director of Cushman & Wakefield of New Hampshire. If the vacancy rate continues to drop, more developers will reconsider construction statewide as a viable investment option, ac-cording to the real estate firm’s commercial report pro-vided to Seacoast Ventures. "Overall, activity has picked up," Farrelly said in an interview. "Retail across the board is just insane.”

Drive through the Seacoast, developers and Realtors point out, and you will see a fair share of new construction, indicating the economy is not so much a caged tiger at all. "Commercial is really roaring in Portsmouth," said Jeff Marple of Marple & James, citing all the scaffolding going up not far from his downtown office. "The market is really robust right now.”

The New England Economic Partnership also delivered a rather sunny forecast for New Hampshire in May. Gross state product will grow at 3.4 percent annually from 2006 to 2010, according to the nonprofit group created to give ob-jective economic analyses. The partnership said job growth would continue in Maine, just at a much slower pace than economists had previously forecast. The bigger picture may not have such a clear economic outlook. Fed Chairman Ben Bernanke told Congress last month that the strong economy could wind down in the near future.

However, month-end statistics and trend spotting has de-railed many a prognosticator in the past, making a clean divorce between perception and reality. As Marple points out, economists and appraisers look at what’s happened, not what’s happening. He sees a renewed energy and inter-est locally, which is borne out by the government’s con-struction numbers.

Construction employment at the close of the first quarter of 2006 was an estimated 30,400 people in Maine and 30,600 people in New Hampshire, according to the U.S. Bureau of Labor Statistics. The New Hampshire estimate is the highest on record in more than a decade. The Federal Reserve Bank of Boston’s economic indicator reported in April that New England construction is 5 percent ahead of last year. But its consumer confidence index was down 18 percent.

While market interest is up, people are still being a little cautious, confirmed Steve Dumont of the Dumont Property Group. Dumont said the higher cost of construction may be a factor. And yet, several Dumont properties and lease space on the market are no longer available because of demand. The Dumont-owned Gonic Mill in Rochester, for example, a one-time home to the former Cabletron Systems, has no vacancy.

Dumont said there is a little something for everyone in the market. "The Dover area to me is probably one of the hottest areas right now," he said.

Peter Russell of ERA The Masiello Group said he has been busy since 2005, working with commercial interests seek-ing high visibility sites, such as locations on or near Route 16, Route 4, Route 108, and Route 125. One of his latest projects is a new Hampton Inn proposed for Weeks Cross-ing in Dover. "It’s booming," Russell said.

Area municipalities, not just Portsmouth and Dover, saw new demand this spring. Hampton Town Planner James Steffen fielded a new proposal for a major office and ware-house building on Merrill Industrial Drive. He said the town’s planning board also recently approved a 6,000 square-foot office addition at the former Sanders and McDermott building on Lafayette Road.

Dudley Clark, who specializes in commercial and industrial for Shanley Realtors, said the commercial market right now is more stable than the residential market. "Vacancy rates in general for office are declining," he said.

Clark reports that space on the market for a while has gone quickly in recent months. He just sold a large mixed-use building on Main Street in Newmarket, as well as transactions involving the turnover of several local busi-nesses. He said a couple of the businesses will continue under different ownership, including Turgeonelli’s, a popular homemade groceria in North Hampton, and the former Dam View Restaurant on Water Street in Exeter.

Marple anticipates more construction across Rocking-ham County in the near future because of limited land in greater Portsmouth. He sees the airport-industrial sector at the Pease International Tradeport as the most depressed part of the market. Businesses and residents alike will benefit when or if air-side development picks up, he said. Dumont notes that Pease is still the premiere business park, despite some higher lease rates per square foot than sites out of the Portsmouth area. "I think the Seacoast will always be strong," said Dumont, citing a good mix of retail and commercial activity.

Farrelly, too, sounded an optimistic note in assessing a market that is red-hot in areas and quite soft in others. But there is still a lot of empty space out there. He recounted a broker telling him recently that he had a client flying in to look at available office space in the southern New Hamp-shire market and the broker had 19 buildings lined up to show the prospective businessman. "There’s still a way to go in both office and high-tech manufacturing," Farrelly said.

While the small to medium sized businesses seeking 3,000 to 5,000 square feet may do most of the chipping away at vacancy rates, larger companies are likewise mak-ing inroads. A positive sign in New Hampshire was Axsys Technologies Inc. consolidating some of its Massachusetts operations at Teradyne’s former site in Nashua. Axsys makes infrared camera systems, and recently landed a contract to supply the equipment for Kuwaiti border surveillance. In announcing its move north of the border, Axsys officials said they wanted to retain New Hampshire tax advantages – no income tax, no sales tax – for its employees.

The Cushman & Wakefield market snapshot released this spring draws a parallel argument. The report concludes: "Continued growth, followed by increased rents in Massachusetts, will inevitably refocus attention on southern New Hampshire’s inherent business costs advantages."