2024 Forecast: General ‘unease’ in the air as potential tenants look ahead

File Photo / Tim Greenway Justin Lamontagne, a broker who oversees industrial real estate for the Dunham Group, cites a general “unease” going into 2024.

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By Peter Van Allen

Justin Lamontagne, a broker who specializes in industrial real estate, says he noted a decided drop-off in client contact in the second half of 2023.

“Anecdotally, in the third and fourth quarters, there was a general unease in the air,” Lamontagne tells Mainebiz. “This was evidenced by a decrease in phone activity, heightened buyer hesitancy, stricter lender underwriting, and numerous, ‘Let’s see what the new year brings’ discussions among decision-makers. Frankly, it felt a little 2010-ish.”

The chill might have come from worsening economic signals, the rise in interest rates or global events.

Overall, 2023 was a “vibrant and exciting year in the commercial real estate market. We saw steady demand in all sectors and several significant development projects came to fruition,” says Lamontagne, who is a partner and designated broker at the Portland-based Dunham Group.

Looking ahead to 2024, Lamontagne says Maine’s remains well positioned.

“The extent of this slowdown remains uncertain, but historically, Maine has demonstrated resilience, experiencing more conservative ebbs and flows. Our predominantly small to medium-sized business community, with its nimble decision-making and planning, may contribute to this adaptability,” he says.

“However,” he continues, “economic conditions do impact us, with substantial office space vacancies hurting the market, especially in suburban settings like the Maine Mall area. Larger floor plates of 20,000 square feet or more are available, indicative of a shift away from the traditional call-center/cubicle working style.

"Savvy landlords are creatively repurposing or subdividing these spaces, while others, either resistant due to cost or unwilling to adapt to changing a market, grapple with heavy carrying costs and frustrated leasing brokers.”

Adaptability will be the name of the game in the 2024 office market, he says.

Downtown Portland’s office leasing will remain steady and he cites the return of small and medium-sized businesses wanting to return to an office setting — albeit, with a different setup than before the pandemic.

“The prevailing trend is a hybrid model, incorporating desk hoteling and flexible employee schedules, leading to smaller, more consolidated office layouts,” he says.

Some 300,000 square feet of downtown office space is expected to convert to housing or hotel space.

“This will significantly lower our vacancy rates but not reflect a fair indicator of office absorption. Rather, it’s another example of adapting commercial space to meet alternative demands,” he says. The industrial sector in southern Maine will be “as competitive as ever,” he says.

“Our current overall vacancy rates are hovering historically low, near 1% to 2%,” he continues. “Despite a slowdown in the cannabis cultivation industry, traditional demand remains strong, particularly in light industrial healthcare and home improvement. This supply-and-demand imbalance is currently offsetting interest rate pressures, maintaining steady lease and sales pricing.

"We did see a slowdown in overall transactions, however that has less to do with demand, and more a critical lack of inventory. I expect that trend to continue in 2024.”