market report… · market, overall market conditions remain well balanced. while new construction...

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

METRO BOSTON INDUSTRIAL MARKET REPORT

FIRST QUARTER | 2019

2 | METRO BOSTON INDUSTRIAL | Q1 2019

BOSTON MARKET INDUSTRIAL OVERVIEW

Greater Boston industrial vacancies ended the first quarter slightly higher as

speculative construction weighed on fundamentals. Vacancies, at 8.8%, are

still in line with their 20-year lows though. Insulet, Dealer Tire, Estes and Spire

Printing all took occupancy of large blocks of space during the quarter —

helping to keep net absorption in the black. The warehouse market continues

to dominate, boasting the lowest vacancy rate and accounting for more

than 200,000 square feet of positive absorption during the first quarter. New

construction continues to drive frothy rent gains throughout the metro area.

Having expanded by 40-50% over the last 10 years, asking rents are sitting at

all-time highs. Above-average growth has been centered inside of Route 128,

but with limited availabilities in these areas, landlords along Route 495 are

gaining traction.

Boston’s industrial pipeline remains steady as developers continue to bring

new product on line. Speculative development is dominating activity, with

only 26% of the nearly two million square feet currently underway pre-

leased. The 300,000-square-foot 100 Financial Park in Franklin, Condyne’s

513,000-square-foot expansion at the Bluestar Business Park in Norton and

DeBartolo Development’s 350,000-square-foot 725 Elm Street in Bridgewater

are expected to deliver in 2019 with large availabilities. A handful of other major

developments are expected to break ground soon as well. While vacancies will

likely face some more upward pressure as a result, especially in the warehouse

market, overall market conditions remain well balanced.

While new construction is putting upward pressure on vacancies, recent

speculative development is also driving strong rent gains throughout the

industrial market. Average asking rents across the Greater Boston metro

are nearing $10/SF NNN, with infill locations and submarkets with high

concentrations of Flex/R&D space garnering much higher lease rates. This

represents a cyclical high for the market. Moreover, year-over-year rent growth

is actually accelerating. Annual rent growth over the last two quarters has been

close to 10%, which is well above recent historical trends. Expect solid gains in

the near term outlook, especially if the construction pipeline remains robust

and vacancies continue to hover near historically low levels.

Consensus among most economists is that 2019 will remain a year of growth.

However, uncertainty is weighing on sentiment. A yield-curve inversion (the

10-year versus the 3-month Treasuries), trade conflicts and global economic

instability have emerged as potential economic risks. Many are looking to 2020

as a potential inflection point in what will likely be the longest U.S. economic

expansion in history.

8.8%

TOTAL VACANCY RATE

182,313Q1 NET ABSORPTION

(SF)

$9.86ASKING RENT

($/SF)

1,983,938UNDER CONSTRUCTION

(SF)


INDUSTRIAL WAREHOUSE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 95,885,446 6,147,767 6.4% 272,240 272,240 $7.75

• First-quarter net absorption totaled roughly 272,000 square feet in

the Greater Boston warehouse market, which represents the eighth-

consecutive quarter of positive absorption. New construction kept

vacancies flat, at 6.4%, over the quarter. Developers are ramping up

construction in order to meet the growing need for modern, high-quality,

“smart” distribution space, with total square feet under construction

nearing 1.6 million. Near-term fundamentals in the local warehouse

market are expected to continue to benefit from solid leasing and demand

from new and growing warehouse/distribution tenants needing to meet

the growing consumer demand.

• With such robust demand, particularly from the growing importance of

e-commerce and last-mile delivery, large warehouse/distribution users

are facing fewer options. Tenants in need of 300,000 square feet or more

of warehouse space have only a handful of choices in the metro area.

That said, new construction will help relieve some of this pressure on

fundamentals.

• Much of Greater Boston’s current development is focused on warehouse/

distribution product, with close to 1.6 million square feet underway as of

the first quarter of 2019. Developers remain focused on the metro’s key

distribution hubs in the south. The Route 128 and 495 South submarkets

account for 83% of all warehouse development. Work continues on

Condyne’s 513,000-square-foot Bluestar Business Park in Norton and on

the 300,000-square-foot 100 Financial Park in Franklin. Another 350,000

square feet of space is slated to come on line by the end of 2019 at 725 Elm

Street in Bridgewater as well.

• Medline Industries and MSHQ executed major warehouse leases during

the first quarter; taking down several hundred thousand square feet of

space in Taunton and Westborough, respectively.

• Asking rents continue to set records, supported by current market

conditions and speculative construction. Ending the first quarter at $7.75/

SF, lease rates are sitting 7.6% over year-ago levels and 28% above rates

seen at the end of 2014. Lease rates in the Route 495 North and South

submarkets have seen significant amount of growth over the last five

years; expanding by 40%-50% during this period.

TOTAL VACANCY

NET ABSORPTION & SUPPLY

ASKING RENT

0%

2%

4%

6%

8%

10%

12%

14%

2014 2015 2016 2017 2018 20192013

5-YEAR HISTORICAL AVERAGE VACANCY RATES

-1,000

-500

0

500

1,000

1,500

2,000

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

NET ABSORPTION NEW SUPPLY

$0

$1

$2

$3

$4

$5

$6

$7

$9

$8

$/SF

(NN

N)

2015 2016 2017 2018 2019


INDUSTRIAL FLEX/R&D

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 52,230,658 6,658,475 12.7% (604,937) (604,937) $11.92

• While Greater Boston’s Flex/R&D market continues to benefit from the

growing tech, biotech, and light manufacturing industries, several recent

move-outs resulted in roughly 600,000 square feet of negative absorption

in the first quarter. As a result, Flex/R&D vacancies increased to 12.7% over

the quarter. That said, the market continues to see persistent demand

from technology-related companies, which is expected to drive growth in

the local Flex/R&D market in the coming quarters.

• The Route 128 South submarket accounted for the lion’s share of negative

absorption during the quarter. Universal Wilde vacated 200,000 square feet

at 26 Dartmouth Street in Westwood and the Mass Lottery relocated from

60 Columbian Street in Braintree to its new headquarters in Dorchester.

• Rents continue to climb steadily in the Flex/R&D market despite rising

vacancy rates. Metrowide rents ended the first quarter just shy of $12/

SF NNN. Lease rates are up 6.0% year-over-year and 1.7% over the

quarter. Flex/R&D users looking for space inside of Route 128 will pay a

premium, with asking rents surpassing $20/SF NNN in some markets.

Continued pressure from residential, life science and other mixed-use

redevelopments will impact the availability of infill industrial sites;

keeping rents on their upward trajectory.

• Several Flex/R&D assets changed hands during the first quarter. In one

of the largest transactions of the quarter, Oakdell, LLC acquired the

115,650-square-foot 28 Damrell Street in South Boston for $33.5 million

or $299/SF. This sale points to the meteoric rise in demand for urban, infill

industrial assets. Trillium Brewing also purchased a Flex/R&D building on

the former Reebok campus in Canton from Spear Street Capital for $13

million. The brewing company plans to convert the property into a large

brewery and taproom. AMERCO Real Estate Company purchased two

assets, including a Flex/R&D building at 145 Milk Street, in Methuen for $12

million. The firm is planning to convert the properties into a self-storage

facility.

• Volatility in the stock market led high-tech indices to decline significantly

at the end of 2018. Pricing rebounded nicely in early 2019, which bodes

well for the Greater Boston Flex/R&D markets. However, further strain in

the markets would ultimately result in demand-side risks.

VACANCY BY SUBMARKET

NET ABSORPTION & ASKING RENT

BLOOMBERG MASSACHUSETTS HIGH TECH INDEX

0%

4%

8%

12%

16%

20%

2013 2014 2015 2016 2017 2018 2019

ROUTE 495/METROWEST ROUTE 128 URBAN CORE

-600

-400

-800

-200

0

200

400

600

800

SQU

AR

E FE

ET(t

hous

and

s)

2015 2016 2017 2018 2019

ASKING RENT NET ABSORPTION

$/SF(N

NN

)

$4

$6

$8

$7

$5

$10

$9

$11

$13

$12

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017 2018


INDUSTRIAL MANUFACTURING

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 35,005,249 3,368,620 9.6% 515,010 515,010 $9.61

• After facing some headwinds last year, Greater Boston’s manufacturing

market rebounded during the first quarter. With more than 500,000 square

feet of positive absorption, vacancies declined by 50 basis points to end

the quarter at 9.6%. The opening of Insulet’s new facility at Nagog Park in

Acton and Maxon Motor’s new manufacturing site in Taunton drove much

of this activity. Manufacturing fundamentals remain dynamic and demand

drivers continue to shift to marijuana cultivation, drug production, food

production and high-tech manufacturing.

• Trillium Brewing announced plans to open a production brewery on the

former Reebok site in Canton. The popular brewer recently purchased a

19-acre site with a 140,000-square-foot building at the Royall Street facility

with plans to relocate operations over the next few years. With this move,

Trillium will consolidate leased spaces in Canton and warehouses in Avon

and Taunton.

• Massachusetts’ marijuana industry continues to bolster manufacturing

activity. At the end of 2018, AmeriCann began construction on its

Massachusetts Medical Cannabis Center in Freetown. The 30,000-square-

foot first phase is slated to come on line in 2019. Plans are already in the

works for the campus’ 345,000-square-foot second phase as well. All told,

AmeriCann plans to develop nearly one million square feet of cultivation

and processing space.

• Build-to-suit projects dominate current construction activity in Greater

Boston’s manufacturing market. Pilot Development recently broke ground

on a 50,000-square-foot processing facility for Boston Sword and Tuna on

Parcel 6 at the Massport Marine Terminal. The seafood processing company

will expand operations from 8 Seafood Way once construction is complete.

Senior Metal Bellows is expanding its manufacturing facility in Sharon by

47,000 square feet as well.

• While manufacturing as a whole accounts for only 7% of total employment in

Massachusetts, the Bay State remains a pioneer in advanced manufacturing.

High labor and business costs tend to drive large manufacturers to lower

cost locations outside of New England. However, hi-tech industries like

computer and electric products and chemical manufacturing are among

Massachusetts’ top contributors to GDP.

VACANCY & NET ABSORPTION

ASKING RENT

MASSACHUSETTS MANUFACTURING REAL GDP

-800

-600

-400

-200

0

200

400

600

SQU

AR

E FE

ET(t

hous

and

s)

2013 2014 2015 2016 2017 2018 2019

NET ABSORPTION VACANCY RATES

11%

7%

9%

5%

3%

1%

-1%

$0

$2

$4

$6

$8

$12

$10

$/SF

(NN

N)

2015 2016 2017 2018 2019

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

MIL

LIO

NS

2005 2007 2009 2011 2013 2015 2017


NOTABLE TRANSACTIONS

800 JOHN QUINCY ADAMS ROADTAUNTON

112 BARNUM ROADDEVENS

301 BARTLETT STREETNORTHBOROUGH

425 WAVERLEY OAKS ROADWALTHAM

Company Medline Industries Company Nypro Company MSHQ Company Vecna Technologies

Size 350,326 SF Size 247,060 SF Size 100,000 SF Size 77,709 SF

Submarket Route 495 South Submarket Route 495 North Submarket Route 495 West Submarket Route 128 West

1 FIRST AVENUEPEABODY

2-8 CRAIG ROADACTON

333 BOSTON PROVIDENCE TURNPIKENORWOOD

525 BODWELL STREETAVON

Company Spire Printing Company Avnet, Inc. Company Organogenesis Company Aqua Leisure


Submarket Route 128 North Submarket Route 495 North Submarket Route 128 South Submarket Route 128 South

165 GROVE STREETFRANKLIN

675 CANTON STREETNORWOOD

200 RESEARCH DRIVEANDOVER

101 BISHOP STREETFRAMINGHAM

Company NRX Logistics Company Caesarstone Company Physical Sciences Company ABC Supply


Submarket Route 495 South Submarket Route 128 South Submarket Route 495 Northeast Submarket Framingham-Natick


RESEARCH SPOTLIGHT

TOP 5 MASSACHUSETTS MANUFACTURING INDUSTRIES

MANUFACTURING AS A % OF TOTAL EMPLOYMENT

50

52

54

58

56

62

60

64

68

66

70

0

40

20

60

100

80

120

AV

ERA

GE

EMPL

OY

MEN

T/ES

TAB

LISH

MEN

T

AV

ERA

GE

WA

GE

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

6%

8%

7%

9%

11%

10%

13%

12%

14%

US MASSACHUSETTS

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

WAGE GROWTH-MASSACHUSETTS AND THE U.S.

160

150

140

130

120

110

100

170

180

190

200

1998 2000 20011999 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. TOTAL U.S. MANUFACTURING

MASSACHUSETTS TOTAL MASSACHUSETTS MANUFACTURING

GDP(MILLIONS)

1. Computer and Electric Product Manufacturing $15,924.10

2. Chemical Manufacturing $9,461.70

3. Fabricated Metal Product Manufacturing $5,037.20

4. Miscellaneous Manufacturing $4,747.20

5. Food and Beverage and Tobacco Products $2,879.60

MASSACHUSETTS HIGH TECH MANUFACTURING


CAPITAL MARKETS

• Momentum in Boston’s industrial market continued into the New Year.

More than $530 million in industrial and Flex/R&D assets changed hands

during the first three months of 2019, with urban sales boosting volume

and pricing. Developers looking to meet the city’s ever-growing need for

housing and other commercial uses are acquiring older, industrial assets

for redevelopment and are keeping prices elevated. At close to $90/SF,

the median price per square foot in the Boston industrial market is 17%

above 2008 levels.

• Two of the seven transactions over $20 million were located in Boston.

The Verndale Corporation sold the 115,650-square-foot 28 Damrell Street

to Oakdell, LLC for $33.5 million or $290/SF and Centerbridge Partners

acquired the 88,256-square-foot 420 E Street from GFI Partners for $32.5

million or $368/SF. Look for capital to continue flowing to aging industrial

corridors in neighborhoods like the South End and South Boston.

• Other major trades include Sun Life Institutional Investments’ acquisition

of two properties for $76.7 million and Charles River Realty Group’s

purchase of 1 Technology Way in Norwood for $28 million.

MEDIAN PRICE/SF

TOP Q1 / INVESTMENT SALES

INDUSTRIAL PORTFOLIOBELLINGHAM/LITTLETON

28 DAMRELL STREETBOSTON

420 E STREETBOSTON

1 TECHNOLOGY WAYNORWOOD

Buyer Sun Life Institutional Investments Buyer Oakdell, LLC Buyer Centerbridge Partners Buyer Charles River Realty

Group

Price $76,650,000 Price $33,500,000 Price $32,500,000 Price $28,000,000

Total SF 688,370 Total SF 115,650 Total SF 88,256 Total SF 130,000

Price/SF $111 Price/SF $290 Price/SF $368 Price/SF $215

Cap Rate - Cap Rate - Cap Rate - Cap Rate -

SALES VOLUME($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN($/SF)

MEDIAN CAP RATE

$533 M 97 5.1 M $86 6.1%

SALES VOLUME

$800

$600

$700

$500

$400

$300

$200

$100

$0

$(m

illio

ns)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$120

$100

$80

$60

$40

$20

$02008 201420132012201120102009 2015 2016 2017 2018 2019


TOTAL INVENTORY

(SF)

UNDER CONSTRUCTION

(SF)

DIRECT VACANT

(SF)

SUBLEASE VACANT

(SF)

TOTAL VACANCY

RATE

Q1 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT NNN

($/SF)

Urban Core 18,732,486 150,000 2,041,919 34,176 11.1% (101,761) (101,761) $16.12

Framingham-Natick 3,213,188 - 121,121 - 3.8% (12,085) (12,085) $9.14

Route 128 North 28,807,333 - 1,686,792 125,850 6.3% (52,339) (52,339) $9.89

Route 128 Northwest 3,812,608 - 157,314 29,776 4.9% (3,521) (3,521) $18.41

Route 128 South 39,841,784 397,500 3,048,864 19,440 7.7% (189,636) (189,636) $7.72

Route 128 West 4,459,603 - 410,182 - 9.2% (67,358) (67,358) $20.47

Route 128 Total 76,921,328 397,500 5,303,152 175,066 7.1% (312,854) (312,854) $9.71

Route 495 North 22,138,555 - 2,692,728 8,049 12.2% 198,426 198,426 $9.91

Route 495 Northeast 12,814,136 - 1,106,012 85,414 9.3% 154,284 154,284 $7.92

Route 495 South 33,153,274 1,211,000 3,125,241 46,359 9.6% 176,144 176,144 $6.60

Route 495 West 16,148,386 225,4383 1,415,282 10,343 8.8% 80,159 80,159 $10.04

Route 495 Total 84,254,351 1,436,438 8,349,263 150,165 10.1% 609,013 609,013 $8.42

Market Total 183,121,353 1,983,938 15,815,455 359,407 8.8% 182,313 182,313 $9.86

INDUSTRIAL RECAP

METHODOLOGY

Source: Co-Star, Hunneman. Prepared: March 2019.

Disclaimer: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose.

Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.

LIZ BERTHELETTEDirector of Research

[email protected]

JOEY BIASIResearch Analyst

[email protected]

303 CONGRESS STREET | BOSTON, MA 02210 | 617.457.3400 | HUNNEMANRE.COM

market report… · market, overall market conditions remain well balanced. while new construction...

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