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Industrial Sector Is The Leading Commercial Real Estate Asset Category

21 Apr

During this era of social distancing and confinement, anyone who has been purchasing groceries online has experienced the challenges with delivery of these products. These challenges can be attributed to constraints relating to warehousing, logistics, and supply chain issues which have been revealed as the novel COVID-19 ravages the planet.

Previously, the growth of e-commerce has been somewhat restrained, as some consumers object to online shopping and in particular, a reluctance to shop for groceries online. However, the government imposed stay at home measures have created a surge in e-commerce. Consider that on March 13th and 15th the U.S. grocery industry had a 100% increase in daily online sales compared to the baseline period of March 1 – 11.* This is expected to be sticky as consumers more widely adopt these practices, trust, and enjoy shopping online. A “Brick meets Click/Shopper Kit” survey found that 46% of respondents will continue to purchase goods online post pandemic.* This will increase the demand for cold storage space. CBRE Research has found that an additional 75M to 100M of freezer/cooler space will be needed to meet the demand for direct to consumer food delivery. The global pandemic is now accelerating this trend. 

The fact that restaurants have been forced to shut down does not change this trend. Food is shipped in and out of warehouses whether it’s delivered to restaurants, grocery stores, or direct to consumer. While restaurant revenues decrease, grocery sales rise and distributors adjust their supply chains.

The increasing demand is not for only online ordering of groceries but across the flow of the entire spectrum of e-commerce delivery of consumer goods. Industrial properties are now and will continue to be the beneficiary of this phenomenon as e-commerce continues to expand and implementation of last mile logistics continues to grow. The expectation is that along with the growth of e-commerce, inventory held on hand will also continue to expand. This will significantly impact the demand for warehouse space across the country. Consider the following data points:

  • Each incremental $1B of e-commerce sales growth requires approximately 1.25M SF of warehouse space
  • If e-commerce grows at an annual 20% rate over the next 5 years (vs. the projected 14%), then there will be a need for up to an additional 400M sf above the 500M sf what was projected given the actual 15% annual growth rate.
  • A 5% increase in business inventories would require an additional 700M to 1B SF of occupied space.*

Current supply chains have adopted a just in time model and are designed for perfection with the objection of warehousing a minimum amount of inventory. Now, we see weakness in this model when sourcing of products is stressed to capacity (e.g. toilet paper). Moving forward the amount of inventory held will increase and thus increase the demand for warehouse space.

Another area of weakness in supply chain is sourcing of products. We now see an over reliance on products from overseas including medical equipment and instruments, pharmaceuticals, electronic components and auto parts. There will therefore be a trend for on-shoring of manufacturing to mitigate supply chain challenges.

Last, new construction of new industrial product has been muted and 50% of properties due to deliver in 2020 are either build to suit projects or pre-leased. So a sudden delivery of new industrial product is a non-issue. Further, in the Boston area, we have witnessed a drastic reduction of industrial supply as many properties close to downtown have been repositioned to higher and better uses such as multi-family, office or retail development. There is speculation that multi-story last mile logistics facilities which have emerged in New York City and Seattle will continue to be developed in metro areas.

All of these factors will contribute to increasing demand for industrial space which will keep vacancy rates low, support lease rates and property values. Indeed, Costar has reported that even in a worse case scenario, vacancy rates will remain in the single digits. See charts below for a general overview of absorption and vacancy rates.

An experienced commercial real estate broker can assist with navigating this complicated landscape and be a valuable resource and help guide through the market.

Warren Brown, Boston Commercial Properties, Inc.

*Source: CBRE research


All information provided is from sources deemed to be reliable, however no warranty or representation is made as to the accuracy thereof.

Commercial Lease Renegotiation During Covid-19

30 Mar
March 30, 2020

A frequent question consistently raised during these tumultuous times is how to handle a tenant seeking to renegotiate its rent payments or cease paying rent altogether. As this post explains, it’s best for both tenant and landlord to work together to reach an amicable solution. Let’s take a look at the issue from both perspectives.

Tenant Side:  

Tenants should carefully review their lease agreements to understand their rights during current circumstances, as non-essential businesses have been ordered to shut down. In particular, many leases contain a force majeure clause, which may have been perceived to be an insignificant issue at time of lease negotiation, but suddenly is gaining lots of attention. This clause is a legal term pertaining to unforeseeable circumstances that prevent someone fulfilling a contract. The advent of COVID-19 can certainly be considered an unforeseeable circumstance, but all force majeure clauses are not uniformly negotiated. These clauses may not explicitly permit a tenant to cease rent obligations, and may require tenants to continue paying rent. Sometimes this clause may not be included in a lease altogether. Further, pursuing a force majeure case can be time consuming, lead to costly legal bills, and may be difficult to wind through the legal systems. A better solution is for a tenant to approach its landlord up front to work out an amicable solution. In many cases, tenants will find a sympathetic landlord especially if the relationship has been positive leading up to the current crisis. Hopefully, the landlord that has existing debt, and in turn has a sympathetic lender that is also flexible on loan payment terms. Unlike the Great Recession, most banks have strong balance sheets heading into the current crisis, and are on more solid footing to offer flexibility. However, tenants should understand that in addition to debt obligations, landlord’s also have bills to pay such as real estate taxes and operating expenses. Further, not all lenders will be amicable to allow restructuring of landlord’s debt service, and loans may contain specific covenants requiring the landlord to maintain specific cash flow levels and other ratios.

Alternative methods to structure rent include a straight rent abatement for a period of time, partial rent abatement, rent abatement with tack on of equivalent rent on back end of the lease and a more aggressive restructuring of business terms. The latter approach, popularly described as “blend and extend” during the previous downturn, is to reduce the rentable square footage, and gradually increase this over the term and extend the lease term altogether. This allows the tenant to obtain up front relief while stabilizing the tenancy for the landlord especially if the lease is close to end of the term.

Tenants should also take a hard look at the recently signed Cares Act for beneficial provisions such as the Paycheck Protection Program which, for eligible employers, provides for a refundable credit against qualifying wages, as long as the employer continues payroll for its employees. More details on this program can be found here: 

Landlord Side:

Setting the scene for landlords to treat tenants amicably, the second largest apartment owner in the country, Equity Residential, recently announced that it will pause evictions for tenants that have been impacted by COVID-19, as well as hold off on rent increases for 90 days. However, commercial leases are more complex than residential leases, and most landlords are not as well capitalized as Equity Residential, and thus need to take more proactive action.

One of the first actions a Landlord should take to get out in front of this issue is to immediately reach out to its lender to find out flexibility of the terms of its loan. As mentioned previously, the current crisis is not rooted in the financial services industry. Some lenders have been considering interest only payments for a period of time. Perhaps relaxing cash flow, cash on hand and other loan covenants can be arranged.

Landlords should also carefully review their lease agreements and understand tenant’s rights under force majeure, as well as its own rights in the event of tenant default. As mentioned earlier, taking legal action can be costly, and it is highly unlikely to find a landlord-sympathetic court to hear an eviction proceeding for quite some time. Further, eviction is not prudent with the prospect of having an extended vacancy, and best to be cautious with pushing default given social pressure and potential tenant legal argument of force majeure.

Landlords do not need to be in a position to be taken advantage of and tenants should be prepared to fully explain its financial position and provide financial statements for the Landlord and Landlord’s lender to review. If a tenant’s claim is legitimate then there should be no issue with providing financials. 

An experienced commercial real estate broker can be the trusted advisor for either party to find the best market based solution during these challenging times. Please contact me to review your specific lease issues and assist with navigating this complicated landscape to find the ideal solution in order for you to be successful.

Warren Brown, Boston Commercial Properties, Inc.



All information provided is from sources deemed to be reliable, however no warranty or representation is made as to the accuracy thereof.

Victoria Heights, Roslindale 

28 Jan
  • 23.34 acre development site within the City of Boston located at American Legion Highway, Cummins Highway and Hyde Park Ave.
  • Fantastic development opportunity for multi-family, mixed-use, senior housing, assisted living, affordable and workforce housing, retail, educational, institutional and hospitality uses.
  • Accessible via several train and bus routes.
  • Generational opportunity.


All information provided is from sources deemed to be reliable, however no warranty or representation is made as to the accuracy thereof.