E-commerce and the growth of the digital age have become important factors in the tightening industrial real estate market. With single-digit vacancy rates becoming the norm in nearly all of the Greater Boston submarkets, existing product cannot supply the space necessary to meet current market demand. Consumers’ shopping attitudes have changed, and retailers are having to adjust their strategies to meet their needs.
Steve Clancy, CBRE/New England
In 2016, the Greater Boston industrial market recorded vacancies averaging 6.8 percent, the lowest in more than 15 years. The thriving e-commerce industry has been a large factor in the spike in demand. Last year, major e-commerce tenants like Amazon, FedEx and Wayfair expanded their presence in the Boston market with new leases on distribution centers, pushing 2016 absorption to almost 6 million square feet, an all-time record.
Retailers are now looking to expand their coverage with multiple warehousing locations, pushing for facilities proximate to their specified consumer base. Instead of having one regional warehouse/distribution center, retail giants have zeroed in on infill submarkets surrounding cities to locate multiple warehouses close to the population center. Just last year, Amazon leased a 96,600-square-foot warehouse in Everett, minutes from Downtown Boston, which would become a base for grocery and food distribution within the city.
Speed-to-ship has become the single most important factor in most e-commerce supply chains. Expedited delivery services are now an expectation; it is difficult to find a major retailer that does not offer quick delivery for shoppers. Large retailers are striving to cut back on delivery times by acquiring space as close as possible to the city center. This is when you start seeing smaller warehouses driven by logistics rather than bulk storage.
The urban industrial options in Boston are scarce. Not only is there high demand in the market, but an increase in property redevelopments for higher uses is reducing existing industrial inventory. The high demand and the recent spike
Katherine Jania, CBRE/New England
in infill redevelopment have driven up asking rents in the urban and close-in suburb areas of Boston, while year-over-year vacancy in the urban market has been pushed down.
The e-commerce and third-party logistics urban demand has also created a surge of requirements in the adjacent suburbs, as longstanding urban industrial occupiers have been forced to move further out to find affordable space. There has been a steady increase in activity along Route 128, with tenants inquiring about spaces with easy access to nearby metropolitan areas such as Boston and Providence.
— By Steve Clancy, executive vice president and partner of suburban, advisory and transaction services at CBRE/New England, and Katherine Jania, analyst of suburban/Industrial, advisory and transaction services at CBRE/New England. This article first appeared in the February 2017 issue of Northeast Real Estate Business.