Landlords Hike Industrial Rents in Tightening Market

Liz Berthelette, director of research, NAI Hunneman

BOSTON—With vacancy rates falling to a 15-year low, owners of industrial real estate in Greater Boston have taken advantage of strong demand and tight space availabilities and raised rents on average more than 10% in the past year. The keen demand for industrial real estate, driven by the burgeoning e-commerce sector, the healthy local housing market as well as the extremely strong life science industry, has fueled 2.3 million square feet of absorption of industrial space in the past year in Greater Boston, according to brokerage firm NAI Hunneman. Net absorption in the second quarter totaled nearly 1.27 million square feet, driving the industrial real estate vacancy rate in Greater Boston to 8.7%. Liz Berthelette, director of research for NAI Hunneman, says that in the past 12 months, lease rates for industrial space in the region have spiked 11.3% to $8.26-a-square-foot. She says that conditions are very tight for industrial space in the Route 128 market (7.3% vacancy rate in the second quarter) where high demand from firms looking to own or lease warehouse/distribution space has led to net absorption of nearly 900,000 square feet so far this year and an overall vacancy rate for warehouse space in the region of 7.7%. E-commerce is bolstering the warehouse/distribution market on a national and local level, Berthelette says. “Changes in consumer spending and shopping patterns have led to a surge in online retail sales,” she says. “Shipping firms, third-party logistic companies and retailers have been very active in the Boston market this cycle. The strong housing market is also fueling growth in the self-storage sector, and space requirements from building and furniture suppliers. Unprecedented demand by life sciences companies in Boston, Cambridge and the outlying suburbs are driving vacancies lower in flex/R&D  properties (12.5% at the end of the second quarter), which is prompting some building owners to redevelop older properties. One example NAI Hunneman points to is the recent start of the $10-million redevelopment of Upland at Norwood, 100 Upland Drive. The 184,868-square-foot flex building is being redeveloped by Campanelli into a 193,000-squre-foot Class A office building. Both FedEx and Amazon are expanding in Greater Boston. Amazon continues to seek in-fill locations and recently leased 26,700 square feet at 30 Northampton St. in Boston, while FedEx is establishing a warehouse in Quincy at a warehouse facility it acquired from Boston Scientific in a sale-leaseback in the first quarter. The largest deal in the second quarter in the warehouse sector was Costa Provisions’ $9.55-million acquisition of 80 Stockwell Drive (248,000 square feet) in Avon. While the manufacturing market may be struggling elsewhere, the vacancy rate for manufacturing-related space in Greater Boston has fallen to just 5.4%. “Drug manufacturing is one bright spot within an industry that has been declining in importance for several decades,” Berthelette says. She notes that Alnylam Pharmaceuticals broke ground in April on its new 200,000-square-foot facility in Norton, while Pfizer recently began construction on its $200-million, 175,000-square-foot facility in Andover. In total, there is currently more than 1.7 million square feet of industrial construction underway in the Greater Boston area, although most is concentrated in the urban core and south markets. The pipeline is plentiful as well, with up to 900,000 square feet at the Bellingham Business Park, 300,00 square feet on Washington Street in Franklin and 375,000 square feet of high-bay warehouse in Hyde Park on the drawing boards.