The main reason is that land in Greater Boston is just too expensive to support industrial uses. Industrial properties have been re-purposed for other higher and better uses such as multi-family, office, retail or bio-tech lab space development. Since 2013 Suffolk County, essentially Boston, shed 1 million square feet of industrial space (Source: CoStar) or 5% of the total industrial base (Source: Boston Globe, John Chesto 10/15/18 article).
Two examples of this are (aka “The Linx”) and the former Boston Globe printing facility at 135 William T. Morrissey Blvd in Dorchester. In the case of the Linx, this former Verizon garage building was converted into a multi-tenant bio-tech lab building by Boylston Properties. After a very successful and rapid lease-up campaign, this 185,000 sf property was subsequently sold for $154m last year, sending shock waves through the commercial real estate industry. The Boston Globe property has been master planned for a makeover into commercial, lab, and office space by the Nordblom Company.
Another cause for tightening supply of industrial space is the paradigm shift of the retail industry to e-commerce vs. bricks and mortar stores. E-commerce companies increasingly require distribution facilities in very close proximity to heavily populated metro areas to facilitate instant delivery of products to the consumer, and they are willing to pay higher prices for it.
As e-commerce is still in its early stages, demand from this sector for so-called last mile warehouses will not fall off. We are even witnessing a return to multi-story warehouses in highly populated cities to accommodate e-commerce and their need for quick turn from transaction to the consumer. For example, Bridge Development Partners and DH Property Holdings have joined forces to acquire an 18-acre site in Brooklyn, where they plan to a build a four-story, 1.3M SF distribution center, the largest multistory warehouse in the United States (Source 1/11/19 Bisnow). While this will be a state of the art distribution facility with 38 ft. and 28 ft. clearance and truck access to all 4 levels, multi-story warehouse space was unheard of until just recently. Expect this type of investment in existing multi-story warehouses to occur in Boston as well.
As a result of the surge in e-commerce demand and re-purposing of industrial properties, prices have skyrocketed for industrial space close to metro areas and this has spread to the Route 128 area as well. A 40,000 sf industrial building in Braintree is reportedly under agreement to be purchased for $120 psf. This type of pricing is approaching cost for new construction which has historically been the path of last resort for users of industrial space.
Traditional wholesalers and manufacturers that are located in inner city areas are being forced to relocate further away and beyond the Route 128 area to Route 495. Experienced developers such as the Campanelli Companies and National Development have been ahead of this trend and have been buying empty buildings and even building ground up on spec, i.e., without having tenants in hand. However, tenants with requirements for new space will benefit from the new construction as developers recognize the need for high clear heights, ESFR sprinkler systems, wide bay spacing, energy efficient LED lighting and large truck apron to accommodate automation and high tech material handling equipment that tenants require.
As a professional, full service commercial real estate firm, we specialize in industrial property leasing and sales. See our Transactions page to see some of the work we have done. Please contact me to review your specific real estate requirements and assist with navigating this complicated industrial property landscape to find the ideal solution in order for your business to succeed.
Warren Brown, Boston Commercial Properties, Inc.