Greater Boston Industrial Market – ‘If You Build it, They Will Come’
The Greater Boston industrial market is busier than ever. Supply for quality warehouse and flex space is limited and the demand is at an unprecedented high. As a result, we have seen rents soar, achieving upwards of $7 to $7.50 Triple Net rent along I-495, and $9 to $11 Triple Net rent along Route 128, notable increases from just a few years ago.
To coin a well-known quote from the 1989 film Field of Dreams, “If you build it, they will come,” and both investors and tenants continue flocking to the industrial real estate market in the Commonwealth, in some cases making their first appearance in Massachusetts, or in others looking to expand their presence here.
Along with the usual suspects, we are seeing plenty of non-traditional industrial buyer groups as well as users who are now seeing the value in the region and asset class. While developers have experienced tremendous success to date with speculative builds, there are undoubtedly some potential risks on the horizon.
Tenants are looking for clear heights exceeding 30 feet with as many loading docks as possible, a first-class inventory type that is far from common or plentiful in our marketplace. To accommodate changing tenant demand and inventory constraints, we continue to see a mix of build-to-suit and speculative projects popping up throughout the suburbs.
TA Realty has experienced success at 150 Charles Colton in Taunton where they speculatively built a 200,000-square-foot, warehouse building with 30-foot clear heights and recently signed Williams Sonoma to a 140,000-square-foot lease there. Embracing the “if you build it, they will come” model, TA has commenced construction of 301 Bartlett Street, Northborough, a 220,000-square-foot building with 32-foot clear heights that will be virtually the only facility in town offering warehouse space of that scale, quality and speed to occupancy in the Boroughs. Conroy Development has also built on spec a 91,000-square-foot warehouse with 32-foot clear heights at 600 West St. in Mansfield, which flew off the market in a 55,000-square-foot lease to S. G. Torrice, with the balance of the building committed as well. Another interesting project to watch is the two-building 427,000-square-foot development from Campanelli and Clarion in Bellingham where activity has been strong.
Not surprisingly, success in the leasing arena has generated record demand for investors looking to create or grow an industrial presence in this market. National Development recently purchased a vacant 150,000-square-foot warehouse at 61 Leona Drive, Middleboro for $66 per square foot. In the past, this type of vacant property would have traded for $40 to $50 per square foot, but investors are showing how bullish they feel about the sector, paying anywhere between 30- and 60-percent premiums.
Another trend further bolstering the strength of the Massachusetts industrial market is the demand by large biomanufacturing companies. Soaring costs and sparse availability of existing buildings and land in Cambridge has provided opportunities for suburban locations to tap into this industry sector. Initially hitting the radar back in 2016, Moderna signed a 200,000-square-foot, long-term lease at Upland Woods, Norwood where Campanelli Companies constructed a $110 million drug plant they have since sold to Alexandria Real Estate for a whopping $435 per square foot. More recently, Alnylam bought a 12-acre site in Norton for its $200 million manufacturing facility and there are plenty of rumors circulating about other drug companies expanding in the suburbs.
Not all is bliss though. News that the Commonwealth of Massachusetts will enact a 36 percent increase to the minimum wage from $11 to $15 has some employers concerned. We have already witnessed the impact of these conversations, as some companies who actively toured and/or already occupied our market have opted to explore and in some cases relocate to cheaper labor markets like those found in Ohio, for example.
However, despite potential labor cost hikes that could affect more general warehousing and distribution-type operations, we are optimistic that plenty of remaining industrial sectors will accept this new normal as the cost of doing business in the region.
Users in the biomanufacturing and high-tech/clean-manufacturing sectors, for instance, will continue to absorb space as they look to control their own destiny from an R&D delivery standpoint, often with their R&D outposts in the Cambridge and Central 128 markets (which Colliers has coined the “Life Sciangle”). Furthermore, the thriving construction and development market will give building products companies such as HD Supply and Maintenance Supply Headquarters a reason to remain geographically tethered to the area, and hopefully even grow their presence here.
Cannabis cultivators and processing groups, too, are an interesting newcomer group to watch as legislation, lending, and zoning guidelines evolve to better accommodate long pent-up demand from an industry ready to grow (no pun intended) and thrive here. Finally, we would be remiss to leave out the ever-growing, Boston loving e-commerce giants, Amazon, Wayfair and others, who will continue to have a major impact on our consumer-driven market with their need to fulfill next day order delivery expectations.