Industrial Market Keeps Getting Tighter

The Greater Boston industrial market’s vacancy rate is now 11%.

BOSTON—There’s not too much real estate brokers and investors can’t like about the region’s industrial market with each segment—warehouse, flex and manufacturing—enjoying lower vacancies and higher rents. In fact, the warehouse market in Greater Boston saw its vacancy rate hit a record low 11% at the end of the fourth quarter of 2015, down from the previous record low at 11.4% in the third quarter of last year , according to a report issued by brokerage firm Transwestern RBJ . The year-end 2015 industrial vacancy rate for Greater Boston was 47 percentage points lower than the five-year average of 15.7%. Tenants absorbed 239,000 square feet of warehouse pace in the fourth quarter of 2015, with asking lease rates rising to $5.92-per-square-foot from $5.78-per-square-foot in the third quarter of last year. Report author Chase Bourdelaise believes the strong industrial market in the region will continue in 2016. “We’ll usually see one or two property types outperform the other during a reporting period, but fourth-quarter 2015 saw the industrial market firing on all cylinders,” states Bourdelaise, northeast research director for Transwestern. “We anticipate the industrial market continuing to perform well, given that the leasing fundamentals on the demand side and supply side remain healthy and there is limited new construction on the horizon.” There were no new deliveries of new industrial product in the fourth quarter, according to Transwestern. The overall industrial market enjoyed its sixth straight quarter of positive absorption—604,000 square feet in the fourth quarter of 2015—dropping the overall industrial vacancy rate to 10.8%. Other favorable indicators for the Boston market include asking rents rising 3.8% to $6.49-per-square-foot, and a 17.7% increase in sale price value to $93-per-square-foot. The Transwestern report also notes that cap rates fell 0.2 percentage points to 7.0% at the end of 2015 and the industrial sector posted a net gain of 752 jobs in the fourth quarter. Vacancy in flex properties dropped to 13.9%, the lowest level since 2001 and down from 15.3% in third-quarter 2015, on 327,000 square feet of positive absorption. Asking lease rates rose 6.1% to $9.22-per-square-foot from $8.69-per-square-foot in the third quarter. Asking rents for flex space in Greater Boston reached the $9 threshold for the first time since 2008. The tightest market in the region is the manufacturing sector, which saw its vacancy fall to 9.9% from 11% last quarter. Positive quarterly absorption of 104,000 square feet snapped a two-quarter negative streak, while asking lease rates rose 5.6% from $7.66-per-square-foot in the third quarter of last year to $8.09-per-square-foot in the fourth quarter. The manufacturing sector, like the flex market, saw asking rents hit levels last seen since 2008, Bourdelaise notes in his report. Some of the larger transactions in the fourth quarter included Instrumentation Laboratory ‘s 125,000-square-foot warehouse lease at 18 Independence Drive in Ayer, MA; Universal Wilde ‘s 120,400-square-foot warehouse space lease at 675 Canton St. in Norwood, MA and MXD Group ‘s 81,700-square-foot renewal of warehouse space at 57 Littlefield St. in Avon, Ma. The largest sales transaction in the warehouse sector was Colony Realty Partner s’ $27.5-million purchase of 675 Canal St. in Norwood from Prologis . Philips Lifeline ‘s 84,000-square-foot lease at 108 Clark St. in Framingham, MA was the larges lease transaction in the flex sector in the fourth quarter of last year. Wesco Distribution renewed and expanded its lease at 35 Otis St. in Marlborough, MA and now occupies the entire 122,000-square-foot building. The largest deal in the manufacturing sector in the fourth quarter was K-1 Speed ‘s relocation into 76,000 square feet of space at 40 Fordham Road in Wilmington, MA. Other key takeaways from the Transwestern report include: • 92% of the 12.4 million square feet of high-bay space in the submarkets of I-495 are occupied. • The Route 128 South flex market has enjoyed 14 straight quarters of positive absorption totaling 825,000 square feet during that period, including 289,000 square feet in 2015. • Asking rents for Boston area manufacturing plants at the end of 2015 increased 13% from the fourth quarter of 2014. • 95% of manufacturing properties in I-495 West are occupied. • 837,000 square feet of the total 1.4 million square feet of vacancy in the manufacturing market in the region is located in three buildings. Excluding those properties, the manufacturing vacancy rate would fall to just 4.1%.