Strong Fundamentals Drive Capital into Boston Industrial Market


Newmark recently brokered the sale of this 217,592-square-foot warehouse and distribution center in Peabody that was fully occupied by drug wholesaler Cardinal Health. The property’s proximity to the I-95/Route 128 corridor puts it directly in a path of growth of industrial and life sciences facilities.

By Brian Pinch, managing director, Newmark

On a national level, the industrial market continues to perform well amidst the coronavirus-induced market correction that has impacted other asset classes.

Industrial fundamentals ended 2020 on solid footing, with outsized demand, rising rents and a healthy supply pipeline. Despite the impacts of COVID-19, key logistics hubs like Los Angeles and the Inland Empire are doing well, as are smaller metros like Boston. The continued shift towards e-commerce and online shopping, as well as a greater emphasis on strong distribution networks and supply chains, are driving activity within tertiary markets as well.

Brian Pinch, Newmark

Brian Pinch, Newmark

Combined with sustained cap rate compression, such positive fundamentals have led to increased investor interest in the industrial asset class. Capital that was previously allocated for other property types is now flowing into the industrial market, and low interest rates are giving buyers increased purchasing power. As a result, pricing for industrial product continues to climb across many metros, including greater Boston.

In fact, greater Boston’s industrial market maintains one of the most dynamic investment landscapes in the country, as historically tight vacancies and rapidly rising rents attract record levels of capital. Though the metro-wide vacancy rate is below 6 percent — with vacancy for Class A product hovering around 3 percent — only a handful of spaces can accommodate tenants in need of 100,000 square feet or more.

Moreover, a majority of the nearly 4 million square feet of speculative development that has taken place within greater Boston over the last five years has been preleased and now, only two facilities totaling 650,000 square feet remain, both of which should be leased in the coming months.

Such conditions have put significant upward pressure on rental rates, which are nearing $10 per square foot on a triple-net basis at the metro level. Over the last 15 years, industrial asking rents have increased by nearly 37 percent, with a majority of this growth occurring within the last five years.

According to research from Newmark and Real Capital Analytics, approximately $1.2 billion worth of industrial assets trading during the fourth quarter of 2020, the largest quarterly total for industrial investment sale volume on record.

For the year, industrial sale volumes totaled $2.6 billion, as several large portfolios traded hands. Following the acquisition of a four-building Wilmington portfolio in December, Bain Capital and Oliver Street Capital purchased another eight-property portfolio along Industrial Way in Wilmington totaling 687,389 square feet for $154 million.

Greater Boston’s outlook remains decidedly positive as new portfolios coming to market continue to garner significant interest from the investment community. Newmark is marketing a four-building Class A portfolio totaling 544,993 square feet that is owned by National Development, and early signs show that it will trade for record pricing on a per-square-foot basis.

In a post-COVID-19 environment, e-commerce has shifted from a convenience to a necessity, driving more capital to urban infill locations and last-mile logistics facilities. Dwindling supply and rising rental rates in the metro’s urban core continue to push greater Boston’s “last-mile” into the Route 128 corridor, which has grown into a premier alternative for industrial and life science users.

Throughout 2020 several properties located within 15 miles of downtown Boston changed hands as a result. In December, Newmark brokered the sale of the Cardinal Health-anchored property at 11 Centennial Drive in Peabody to Longpoint Realty Partners, which traded  at a cap rate of 3.3 percent.

In addition, Atlantic Management sold an 826,388-square-foot distribution center located at 135 American Legion Highway in Revere for $355 million, or $430 per square foot, making it the largest single-asset industrial sale in the whole country in 2020.

The region’s burgeoning life sciences sector is another bright spot amidst the uncertainty. Growing demand for modern good manufacturing practices (GMP) facilities led to the sale of 1 Upland Road in Norwood and land at 5 Commerce Boulevard in Plainville where ThermoFisher Scientific/Brammer Bio is planning a new manufacturing facility.

With more than 2.5 million square feet in active biomanufacturing requirements, this sector should continue to bolster capital flows into greater Boston’s industrial market in the coming quarters.

Seasoned life sciences owners and developers are also procuring older industrial buildings in hopes of tapping into the industry’s substantial demand prospects. Most recently, 85 Walnut Street in Watertown and 380-420 E Street in South Boston were sold to major life sciences developers. Traditional industrial owners and users will likely continue to compete with the market’s ever-growing life sciences sector.


While purpose-built life sciences projects in Boston like 101 Cambridgepark (pictured), which Newmark is leasing, are a huge growth driver, deals that convert older industrial properties into life sciences space are also bringing fresh capital into the market.

Given the state of the local industrial market, Boston’s investment landscape has shifted in recent years. Pricing, on a square foot basis, continues to break records as well. Average pricing for industrial properties in Boston hit a historic high of $180 per square foot at the end of 2020 — the largest year-over-year increase in pricing among top U.S. markets.

Cap rate compression continued for all industrial product in 2020, with median cap rates peaking at just 5 percent in the fourth quarter of the year. That said, several institutional-quality assets have traded below this threshold.

Institutional capital, which has averaged less than 40 percent of all market activity over the last five years, now accounts for a larger share of greater Boston’s industrial investment landscape, representing more than half of all transactions in 2020. Fourth-quarter investment profiles were similar, as private investors accounted for the lion’s share of sales volume, highlighting the maturation of the local industrial market and overall confidence in this asset class.

Industrial was one of the most favored commercial property types even before the pandemic began, and looking ahead, this sentiment is expected to persist. The industrial asset class will likely continue to experience increased capital allocation from both domestic and foreign investors.

In addition, pricing should maintain upward momentum as buyers focus on modern, high-quality industrial assets and developable land sites, which are in limited supply in greater Boston.

This article first appeared in the January/February 2021 issue of Northeast Real Estate Business magazine.

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