Rebuilding Downtown Economies

From office buildings haunted by memories of tenants past to retail storefronts shuttered for months with yellowing "For Rent" signs, the recession's toll on downtowns statewide is still evident. But there are signs of life as new businesses open and existing businesses take tentative steps towards growth.

But the improvements are emerging slowly. NH's unemployment rate remains low-5.5 percent compared to 9.4 percent nationally-but commercial vacancy rates across the state remain high. The good news is those rates are expected to level out or decrease this year.

Since the beginning of the recession in 2008, the overall vacancy rate in the I-93/Route 3 corridor increased from 13.7 percent to 16.7 percent in 2010, according to CB Richard Ellis/New England's 2011 New Hampshire Commercial Real Estate Market Outlook. The Seacoast/I-95 office market vacancy rate decreased from 20.3 percent in 2009 to 18.3 percent in 2010, or close to 2008 levels. The downtown Portsmouth and suburban office markets' vacancy decreased 0.3 percentage points to 16.6 percent in 2010.

"This reversal signals that the market is headed in the right direction and has passed the bottom of the cycle," the report states. CB Richard Ellis says the Southern NH office market should stabilize in 2011, "Companies that had been using the wait-and-see approach, which was adopted by most office users in 2009, have begun to come off the sidelines and make commitments for new office space," the report states.

So what does this mean for downtowns? Start by looking at how well downtowns in NH's largest economic hubs of Manchester, Concord, Nashua, and Portsmouth are doing. Russ Thibeault, an economist at Applied Economic Research in Laconia, ranks Portsmouth as "flat out healthy," Concord as "healthy, but vulnerable," Manchester as "improving" and Nashua as "struggling."

City officials and real estate brokers say vacancy rates are higher than desired, especially for large commercial offices. Many businesses moving to downtown are service-oriented, including hair salons, photographers or tailors able to operate in upper stories or on side streets. But Roger Dieker, managing broker at CB Richard Ellis in Manchester, predicts stabilizing unemployment figures will increase demand for office properties by year end.

Manchester

Manchester has seen its share of victims of the economy. FairPoint Communications entered bankruptcy in 2009 and gave back 40,000 square feet in City Hall Plaza on Elm Street, according to the CB Richard Ellis report. "2011 will provide the first ever opportunity for image conscious tenants to occupy the top three floors in the tallest building in New Hampshire," the report says.

But Manchester also has new faces. Segway of Manchester, which gives millyard tours on its electric transporters, opened a dealership at 42 Hanover St. last July. "While the millyard is closer to our tours and has charming spaces, Elm Street has more pedestrian traffic and we wanted to take advantage of a traditional storefront," says Store Manager Gerri Moriarty.

Samantha DePrima, marketing director for Intown Manchester, Manchester's central business district association, recorded a total of 826 businesses this year compared to 800 last year. "I'm amazed so many businesses have stayed open and new ones are coming in despite the economy," she says.

The most noticeable trend downtown, says Jay Minkarah, director of economic development in Manchester, is the growth in number, variety and caliber of new restaurants-including Republic Caf and XO, both on Elm Street. While Minkarah laments the lack of new retail stores downtown, he says the handful of new service businesses occupying street-level office space is a positive trend. Those include Jerome Duval and Associates on Hanover Street and Complete Labor and Staffing on Bridge Street.

The historic millyard also continues to be a draw for high tech companies in addition to artists, designers and photographers. When completed, the renovation in the 144,000-square-foot Pandora mill building will add to the competition for tenants in the millyard.

Competition means tenants can be pickier about where they put down stakes. With an abundance of prime office space, the city hopes streamlining the International Existing Building Code adopted last summer will spur owners of Class B office spaces to undertake renovations and make those spaces more competitive for tenants, Minkarah says "As long as vacancy rates remain high and Class A space is available, there is less pressure to go into Class B, particularly if it lacks amenities, such as modern elevators, a lobby or security," he says.

But it's not just businesses Manchester and other communities want to attract downtown. It's also residents. Some of the upper floors of older commercial buildings, such as the Opera Block historic building on Hanover Street or the Pembroke Building on Elm Street, would lend themselves to residential uses, Minkarah says. "This [mix] creates a more vibrant atmosphere, particularly for young professionals," he says.

Concord

With limited street-level commercial space available downtown, Concord has shifted its focus to filling upper-story spaces with a mix of commercial and residential tenants. Wendy Keeler, part owner of Fairway Real Estate, says unless businesses require street traffic, an upper-story space has advantages. "Everybody loves the view of the state Capitol dome," she says.

Jessica Eshleman, executive director of the nonprofit Main Street Concord, says for two consecutive years, she has observed a net gain of businesses on side streets or second stories. "You can rent 2,000 square feet of space for several thousand dollars on Main Street, but you can get it for a fraction on a side street," she says.

Upper story spaces generally suit small, new or appointment-based businesses, Eshleman explains.

Businesses filling second and third stories in Concord now include retail, such as Lost Your Shirt consignment shop; and Capitol Cuts, a hair salon that is on the same floor as multiple masseuses, which Eshleman says provides opportunities for referrals.

Last year, 17 businesses opened in Concord's downtown district, five of them on side streets, Eshleman reports. That compares to 15 openings in 2009, including nine on side streets or second-level spaces. Concord's vacancy rate from Centre Street to Hills Avenue has held relatively steady. It was 12 percent for the third quarter of 2010, up from 11 percent in the same quarter of 2009, according to Jennifer Kretovic at Concord 2020, a group that encourages smart growth in the city.

Despite the decline in retail activity downtown, Eshleman remains positive about Concord. "Because we are a government town with lots of lawyers, we will always be strong in professional and personal services, including restaurants supporting the lunchtime and after-work crowd," she says.

The construction of a new office building on South Main Street by developer Steve Duprey that will house offices for Concord Hospital is causing excitement. "It is almost fully leased," Keeler says. Manchester and Nashua also have large health care construction projects underway, says Dieker of CB Richard Ellis, including the Elliot at River's Edge, a 236,000-square-foot ambulatory care center at the former Jac Pak site in Manchester.

Portsmouth

Despite some turnover and some properties remaining on the market longer than usual, the city has been resilient overall, says Nancy Carmer, director of economic development in Portsmouth. "In this economy, if someone from the outside does not move in, people in the community will usually take their place," she says.

However, Carmer is concerned about a spate of recent office-to-residential conversions. Some office building owners are finding residential conversions more attractive with demand for downtown residential condos on the rise. She says the city is considering modifying zoning regulations within a year to provide incentives for maintaining office space.

To attract businesses downtown, the city needs ample and affordable parking, and Carmer says Portsmouth is currently considering a site off Maplewood Avenue for covered parking. Portsmouth seeks to balance its economic vitality and preserving the historic scale of a walkable city, she says. But that is an expensive challenge since zoning regulations restrict downtown buildings to 50 to 60 feet in height, limiting the availability of office space larger than 10,000 square feet.

One strategy for filling larger office space is to encourage young businesses to incubate in Portsmouth- technology startups, law firms, accounting firms and financial investment companies-that Carmer says could eventually fill larger office spaces, such as those in Portwalk, a new downtown development that will add office, retail and residential spaces.

Nashua

Tom Galligani, director of economic development in Nashua, says he is not seeing any obvious trends in the city's downtown. "We have seen vacancies arise and get filled with no expansion in one district or another in the past two years-pretty typical turnover in any commercial district," he says. "It's been a struggle for the past two years, but last Christmas season was positive and we are looking forward to stronger sales and more stores opening."

Allana Johnston, owner of Three Basketeers Bowtique, moved her business from Tyngsborough, Mass. to Main Street in Nashua in May. Since beginning her search for store space in January 2010, she has seen others also make the move to Main Street, including WineNot, Bella Oils and the League of NH Craftsmen.

Marylou Blasedale, owner of Designwares of Nashua and chairman of Nashua's Services Advisory Committee, says downtowns are in transition. Many businesses are rethinking their business models and finding ways to diversify.

While there are visible retail and office space vacancies along Main Street and several businesses have closed down in the past year, Blasedale focuses on the positive that stems from the new businesses that are moving in. Meanwhile, the Services Advisory Committee is focusing on improving parking and making the downtown district pedestrian friendly. "We want people to stroll downtown. That would change the whole ambience," she says.