Tag Archives: Industrial space

The Shrinking Greater Boston Industrial Base

29 Jan
The Greater Boston market for industrial space is super tight. Overall vacancy rate is just 7.6% at end of the 4th quarter (Source: CoStar Group). I don’t see this changing very much even with an economic downturn. Sure, in such weakened economic environments demand falls off, but I do not foresee an appreciable increase on the supply side in such circumstance.

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.

March 2017: Greater Boston Industrial Market Has Resilience

07 Mar

The current state of the Greater Boston industrial real estate market is strong. In my 30 plus years of experience, I have never seen such low vacancy rates and resilience in this market sector. Consider the following: Current vacancy rates in this sector is approximately 6.1% and we have witnessed 18 consecutive quarters of positive absorption. This is unprecedented and truly remarkable. Given such tight market conditions, lease rates and market values have naturally risen.

While this pace of absorption and near full vacancy is bound to eventually swing back, I predict that there will not be a dramatic jump to ultra high vacancy rates. A major contributing factor to reduced supply has been the removal of large swaths of industrial space as these properties have been re-purposed to higher and better uses. Consider that approximately 2,000,000 square feet of industrial space was scrapped to make way for a new life-style center at University Station in Westwood. Once a vibrant, high-demand industrial park is now a mixed used residential, office and retail development including anchors such as Wegman’s, Target, TJ Maxx, LifeTime Fitness, Bridges by Epoch, several restaurants plus a Marriott Courtyard hotel is now under construction.  North of Boston, the once staid Northwest Industrial Park in Burlington has been transformed to “3rd Avenue Burlington” which includes popular restaurants, residences, and recreation including Kings Bowling.

In the wake of the removal of industrial space, little new construction has followed. Even with such compressed vacancy rates there are just a handful of spec construction projects. Examples include: 151 Charles F Colton Road in Taunton (200,000 sf), 600 West St in Mansfield (91,000 sf) and Kevin Lucy’s 140,000 sf project in Peabody which is rumored to be committed.

New construction has the added benefit of adding modern, high bay space that is more suitable for current manufacturing and distribution requirements. Ceiling heights in these new buildings tend to be 30 ft. clear allowing for higher storage capacity and use of technically superior material handling equipment, heavy floor loads and ESFR sprinkler systems. Drivers for industrial demand will continue with the advances in the biotech industry, e-commerce and the growing population will always have a need for such essentials as food, pet supplies, tires, etc. Indeed we have seen new build to suit projects such as Martignetti’s new headquarters distribution center and Sullivan Tire’s new facility in Taunton.

While I realize that record low vacancy and absorption rates are not sustainable forever the demand drivers, the lack of new supply plus limited land sites to support new construction will continue to dampen a dramatic increase in vacancy rates. The likely scenario in a down market and inevitable economic downturn will be that Class B industrial product will first see vacancy rates rise. Real estate is a commodity and will behave as such subject to supply and demand. Absorption will slow and vacant properties will linger on the market. In such scenario vacancy rates will likely rise to low double digits and values will decrease as much as 20%.  While such market disruption is not desirable this is not a cataclysmic outcome.

Please contact me review and find the best solution to your specific commercial real estate requirements.

Warren Brown, President, Boston Commercial Properties, Inc.