Red Oak Coworking Offices in Manchester. (Courtesy of Red Oak)
Are you reading this at work? If so, are you at home? The jarring changes that the pandemic brought to the workplace scene have disrupted how, and where, many workers do their work. So far, the real estate market for office space hasn’t had to account much for those changes, but that might change soon.
“The big change in the pandemic was it sped up the work-from-home direction that has continued to today,” says Bob Rohrer, the NH managing director for Colliers. “Most office users we’re working with are not at full capacity at the office. They’re either looking to downsize their office footprint or (maintain) status quo.”
Some property owners have already responded to the softening of office demand—and the hot residential market—by reconfiguring their buildings from commercial to residential, from cubicles to condos. Rohrer says he has continued to see healthy demand for medium and smaller office spaces as larger companies have sought more modest accommodations.
“Smaller offices are kind of allowing companies to have a footprint without committing them to a lot of real estate,” Rohrer says, adding that the going rate for office space hasn’t changed significantly since the start of the pandemic.
There are a couple of reasons why the price for office space hasn’t changed yet, says Chris Norwood, president of NAI Norwood Group. The first was due to broad uncertainty as companies had a long list of challenges, such as supply chain issues, PPP loans and what the market for their product or service would look like in the next few years. How much square footage they would need for offices took a back seat to more pressing concerns.
The second reason is due to the length of office space leases, which are typically three to five years. That means that even if a company’s needs changed overnight, they’d be locked in until their lease expired.
With leases that expired in 2020, Norwood says, many companies stayed the course. “I would be hard pressed to say anyone made any decisions (on their lease) in 2020,” Norwood says, as the expectation was that a return to the old normal was just around the corner.
It wasn’t until 2021 or 2022 that Norwood began to see what he called “leading indicators” of a coming market adjustment. Norwood, who’s been in the commercial real estate business for 22 years, says those indicators started out quietly, such as agents discreetly spreading the word that their client is looking to sublet half of their space. Then it became more apparent, with companies moving out of huge office parks into something half the size. More recently, those indicators have become hard to ignore.
Norwood says his office was helping a client find a space in Portsmouth recently. They fired up the search engine, selected all available office space and hit print. “We printed out one listing per piece of paper, and it was like an inch thick of office availability,” Norwood says.
Working Remote, But Not at Home
Coworking businesses, which offer self-employed or remote workers access to an office environment, are positioned to be winners in the shift in working arrangements. Red Oak Coworking, located on Hanover Street in Manchester, opened in 2018. Before the pandemic hit, its occupancy was at 100%, according to business manager Steve Guillette. Things slowed down for a while in 2020, of course, but have since rebounded. Red Oak is soon to open a second location on Elm Street.
Guillette says Red Oak’s success shows while there are advantages to working from home, there are pluses to office life, too. “The people that I see most, their offices are not open, they are working at home, (but) they don’t want to work at home anymore,” he says. “They miss people.” Co-working spaces offer workers access to a desk, a conference room, a coffee maker and a kitchen area, as well as other people.
Ron Dupont, owner of Red Oak, says he sees coworking as a counter-trend to the work-from-home movement, something that had already started before 2020.
“Coworking was kind of a new trend, it was starting up, people weren’t going into the office that much, and the pandemic drove that tremendously,” Dupont says. “I think it’s going to grow, but it’s not going to grow like residential has. It’s going to be what I call a soft grow.”
Reuben Bassett, who assists commercial clients for Legacy Group in Laconia, says he’s seeing a moderate adjustment to the market. “There’s definitely a shift, but I don’t think it’s a complete rewrite,” Bassett says.
The commercial market is a complex one, with each client looking at a unique set of opportunities and risks. For example, he recently saw an IT company vacate a high-profile office building and warehouse in Belmont, only to see another company move right in.
The business that was all too happy to find a vacancy was Rowell’s Services, which provides everything from excavation to plumbing, electrical to HVAC services for residential customers in central NH. Mandie Hagan, owner of Rowell’s, says her company had been operating out of a Northfield location since 2015 and had already purchased another building in Tilton, which they were renovating for new offices during the pandemic. But things changed for Rowell’s in the intervening time.
“We’d already outgrown the space, and we hadn’t even moved in yet,” Hagan says. When she saw that the other building, just a few miles down the road in Belmont, was for sale, she moved on it. Now, Rowell’s still runs trucks out of its Northfield location, but “all our admin is in the Belmont building, and Tilton is for sale,” she says.
The Belmont facility, with 20,000 square feet of space, including warehouses and offices, is the kind of headquarters a growing service company like Rowell’s needs, Hagan says. Why go bigger, when other companies are looking to send people home and find smaller offices? “I think the biggest thing is the camaraderie of being around a team,” Hagan says. Rowell’s business contains so many sub-operations—which Hagan refers to as “pods”—that coordinating the company’s efforts requires close communication.
“For us, it’s the first time, if we had to have a leadership meeting together, we can go into the conference room and we’re all there,” she says. The company is continuing to expand, with another property just purchased in Ossipee to extend northward. It’s important for Hagan to be able to look her team leaders in the eye, so she can tell when they’re having a bad day.
Yet, while Hagan likes to have her team together, she also sees the value of letting employees work remotely. When a valued accounts payable expert moved to Florida, Hagan asked her to stay with the company, with no regrets. “You would think she’s here,” Hagan says. She also has a payroll officer who logs in from Tennessee. “If it works for the employee and it works for the company, it can be a great opportunity for everybody,” Hagan says.
The Rowell’s situation exemplifies for Bassett why the coming office space adjustment will likely be more of a course correction than a revolution. “From my observation, it has really allowed more diversification. We are still going to see demand for office space,” Bassett says. “What I’m not seeing is a complete abandonment of office space."