Despite an economic recovery that is characterized on a national level as listless and lacking vitality, a rising national unemployment rate and apparent challenges in distancing ourselves from the debt crisis, the commercial real estate market in Massachusetts has begun to pick up steam. Market indicators for the Greater Boston market continue to improve, albeit slowly, especially in the high growth sectors such as the pharmaceutical and biotechnology industries.
Employment in the Boston Metropolitan Statistical Area (MSA) grew by 2.1 percent in the 12 months from August 2010 to August 2011. New jobs dropped unemployment to 6.4 percent from 7.5 percent a year earlier, compared with Massachusetts’ unemployment of 7 percent and the national unemployment of 9.1 percent as of August 2011. The leading non-farm payroll jobs in the Boston MSA are education and health services, trade transportation and utilities and professional and business services, according to the U.S. Department of Labor’s Bureau of Labor Statistics.
The overall Boston industrial market ended mid-year 2011 with a vacancy rate of 11.2 percent. The vacancy rate was down from earlier in the year with net absorption equating to positive 1.72 million square feet in the quarter. From mid-2010 to mid-2011, net absorption of industrial space was positive by 2.66 million square feet. The vacancy factor was slightly higher for flex space, at 14.2 percent.
The amount of vacant sublease space in the Boston market decreased to 2.44 million square feet by the end of the second quarter 2011, from 2.52 million square feet at the end of the first quarter 2011. The largest lease signings occurring in 2011 included the 135,000-square-foot lease signed by NFI Industries at 66 Saratoga Blvd. in Devens, the 88,873-square-foot deal signed by VEECO Instruments at 558 Clark Road and the 80,912-square-foot lease signed by MIT Lincoln Laboratory at 3 Forbes Road. The average rental rate for Boston industrial space at mid-year was $6.25 per square foot.
Approximately 366,000 square feet of industrial space was under construction at the end of the second quarter 2011.
Total year-to-date industrial building sales activity in 2011 is up compared to the previous year. In the first three months of 2011, the market saw 34 industrial sales transactions with a total volume of $119.91 million. The price per square foot has averaged $45.77 this year. In the first three months of 2010, the market posted 33 transactions with a total volume of $96 million. The price per square foot averaged $27.61. One of the largest transactions that occurred within the last four quarters in Boston market is the sale of 55 Lyman Street in Northborough. This 260,760-square-foot industrial building sold in January for $18.3 million, or $70.18 per square foot.
Individuals involved in the commercial real estate market in the Boston area have a myriad of reasons to be optimistic. Sales activity has increased, the vacancy rate has declined and many companies are poised to grow. The suburban Boston area offers several salient and compelling advantages in comparison to other areas of the country. The region’s vast number of high caliber institutions of higher learning, rich and diverse cultural heritage, dramatic change of seasons and scenery, outstanding professional sports teams, established biotech and pharmaceutical, along with financial and manufacturing sectors combine to act as a magnet for new talent and entrepreneurial start-ups. While the national picture continues to look bleak in many ways, the commercial real estate world in suburban Boston is beginning to improve significantly.
Looking ahead, we expect vacancy rates for Boston industrial space to compress further with the potential of reaching single digits a year from now, while rental rates should hold steady for several months and then begin to inch upwards by mid-year 2012.
— David Stubblebine, president of Lexington, Massachusetts-based The Stubblebine Company/CORFAC International