Greater Boston’s industrial market continued its hot streak in 2018. Positive net absorption of 350,000 square feet in 2018 marked the eighth straight year of gains.
Vacancies, which ended the year at 10.1 percent, have halved since peaking at the end of 2010. Over this time, the market absorbed 17.5 million square feet and is now poised for continued growth.
Tenant demand remains strong and some of the larger tenants in the market— Albertsons, Premier Distribution, Trimark, Jofran, Amazon, Wayfair, and Harte Hanks— are seeking a total of 3.5 million square feet of space.
Rents are at record highs, in aggregate topping $9.50 per square foot triple-net, which factors in a space-weighted asking rent on available product. Tenants looking for product in the Urban markets are seeing rents at or above $20 per square foot triple-net, while new product in the South and West is into the $7 per square foot triple-net range. Cheaper space can still be found, but landlords have never seen a stronger rental market.
Absorption Slows
Despite the gains, absorption was held back by several large blocks of space coming onto the market throughout 2018. The closing of the Necco factory in Revere opened up more than 800,000 square feet, while Quad Graphics shuttered its Taunton operations at year-end, opening up 350,000 square feet.
These closings are part of a normal business cycle and do not appear to indicate an impending downturn.
On the year, the North market led the way with 722,000 square feet of absorption, followed by the West with 563,000 square feet. Quiet Logistics led the West submarket in the fourth quarter with its 355,000-square-foot lease at 64 Jackson Road in Devens. It is a leading employer in Devens, with multiple operations at the former Army base. The Urban market was negative (662,00 square feet) due to the Necco closure, while the South, the largest market in Greater Boston, was also negative at 275,000 square feet for the year.
Strong fundamentals for multiple years are finally getting development going in the market.
Campanelli’s two-building 427,500-square-foot Bellingham development was completed this quarter, with 7-Eleven and Snyders of Hanover fully leasing the 127,500-square-foot, 353 Maple Street. In Northborough, TA Realty is building a 220,000-square-foot warehouse featuring 32-foot clear heights. Condyne is moving forward on more than 500,000 square feet of industrial product in Norton at Bluestar Business Park, and 300,000 square feet is underway in Franklin. Tenants are seeking the modern product that Boston lacks, so these developments are well positioned to capture the next wave of industrial users.
Life Science Demand
At the same time, landlords want to cater to the needs of today’s life science and tech users. The region’s position as a life science R&D hub is creating demand in the suburbs. Good Manufacturing Practice (GMP) used in manufacturing pharmaceuticals mean that clear heights are imperative.
New assets such as 32 Cabot Road in Woburn (50,000 square feet) are ready to meet this need. Developers aiming for this tech/flex market can rehab their properties with selective demolition, and by raising the roof they can build in better clear heights.
Looking ahead, housing could be a growth driver for Greater Boston. Fifteen communities in and around Boston have announced that together they want to add 185,000 more housing units by 2030. The area’s population and job growth has been substantial in recent years, but housing growth has lagged behind. If this goal were met, it would drive substantial industrial demand, because to construct an average 15,400 units per year, a major increase in contractors and suppliers would be needed.
That could prove a boon to industrial landlords. Across the country during the housing boom of the early-to-mid-2000s, industrial space growth was driven by everyone from plumbers to workers in electrical, flooring, framing, roofing.
As 2018 turns to 2019, the fundamentals in Greater Boston’s industrial market are strong. We are looking at a market with rising rents, healthy tenant demand, and increasing development to meet the needs of our diverse tenant base.
— Aaron Jodka, Director of Research, Colliers International | Boston