MARKET REPORT… · • Food manufacturers are expanding locally as well. Cedar Foods is currently...

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

METRO BOSTON INDUSTRIAL MARKET REPORT

SECOND QUARTER | 2019

2 | METRO BOSTON INDUSTRIAL | Q2 2019

BOSTON MARKET INDUSTRIAL OVERVIEW

Greater Boston’s industrial market continues outperform as fundamentals

remain stronger-than-ever. Quarterly net absorption surpassed one million

square feet during the second quarter and vacancies declined to just 8.2%.

Medline Industries, Dealer Tire and Vecna Technologies all took occupancy

of large blocks of space during the quarter — helping to drive such positive

net absorption. The warehouse market continues to dominate, boasting the

lowest vacancy rate and accounting for close to 600,000 square feet of positive

absorption during the second quarter. New construction and tight market

fundamentals continue to drive frothy rent gains throughout the metro area.

Having expanded by 40-50% over the last 10 years, asking rents have now

surpassed $10/SF NNN on average.

Continued improvements at the Port of Boston should help grow containerized

cargo flowing through the New England area and ultimately drive greater

demand for regional industrial space. Even though the Conley Terminal

handled 298,000 TEUs, which is a 10% increase over the previous year’s

totals, the Port of Boston is only capturing 38%-40% percent of New England

imports and exports. Several planned capital improvement projects, including

expanding its footprint to 130 acres and dredging the main shipping channels

will help increase cargo flows at this regional port.

Boston’s industrial pipeline continues to grow. Speculative development

is dominating activity, with only 20% of the nearly 2.6 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.

TA Realty broke ground on two buildings, totaling 600,000 square feet, at the

Crossroads Logistics Park in Northborough recently as well. While vacancies

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

market, overall market conditions remain well balanced.

In one of the quarter’s hottest industrial headlines, Amazon is planning to

replace Osgood Landing in Andover with a 3.6 million-square-foot distribution

center. This is triple the size of the e-commerce giant’s Fall River facility and

will expand their logistics network north of the city. A Texas-based developer,

Hillwood, is looking to purchase and develop the property for Amazon.

The risk of recession in the near term remains rather low and this expansion

cycle is about to become the longest in U.S. history. However, increased trade

protectionism is a growing downside risk to the 2020 outlook.

8.2%

TOTAL VACANCY RATE

1,034,827Q2 NET ABSORPTION

(SF)

$10.02ASKING RENT

($/SF)

2,583,938UNDER CONSTRUCTION

(SF)


INDUSTRIAL WAREHOUSE

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 95,713,750 5,441,213 5.7% 592,347 1,004,194 $8.48

• Second-quarter net absorption totaled roughly 592,000 square feet

in the Greater Boston warehouse market, which represents the ninth-

consecutive quarter of positive absorption. As a result, vacancies

declined 60 basis points over the quarter; reaching 5.7%. 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 2.2 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.

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

distribution product, with close to 2.2 million square feet underway as of

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

key distribution hubs in the south and west. The Route 128 and 495

South submarkets account for 95% of all warehouse development. Work

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

Norton, the 300,000-square-foot 100 Financial Park in Franklin and the

350,000-square-foot 725 Elm Street in Bridgewater. Another 600,000

square feet of space broke ground at the Crossroads Logistics Park during

the second quarter as well.

• 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 200,000 square feet or more

of warehouse space have only a handful of options, especially in the

north markets. That said, new construction will help relieve some of this

pressure on fundamentals.

• The reported 3.6 million-square-foot Amazon distribution center being

proposed at Osgood Landing in Andover is one of the biggest industrial

stories of the year so far. If the project moves forward, it will be the

e-commerce giant’s largest local fulfillment center by a wide margin.

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

conditions and speculative construction. Ending the first quarter at $8.48/

SF, NNN lease rates are sitting 16% over year-ago levels and 40% above

rates seen at the end of 2014.

TOTAL VACANCY

NET ABSORPTION & SUPPLY

ASKING RENT

$0

$1

$2

$3

$4

$5

$6

$7

$10

$9

$8

$/SF

(NN

N)

2015 2016 2017 2018 2019

-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%

2%

4%

6%

8%

10%

12%

14%

2014 2015 2016 2017 2018 20192013

5-YEAR HISTORICAL AVERAGE VACANCY RATES


INDUSTRIAL FLEX/R&D

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 52,305,712 6,353,487 12.1% 244,713 (297,118) $11.30

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

tech, biotech, and light manufacturing industries. Net absorption totaled

nearly 245,000 square feet during the second quarter. As a result, Flex/

R&D vacancies declined to 12.1% over the quarter. 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.

• While new development is heavily focused on warehouse/distribution

space, there are some users that are adding Flex/R&D space at their

corporate campuses. At their Wilmington headquarters, Analog Devices

is developing a 147,000-square-foot Flex/R&D building as the firm

is consolidating its operations. EMD Serono is also adding another

146,000-square-foot building at its Billerica campus.

• Flex/R&D asking rents remain elevated above $11/SF NNN in the second

quarter of 2019, and on a year-over-year basis, lease rates are up 1.1%.

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

with asking rents surpassing $20/SF NNN in markets like the Urban

Core. 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 major Flex/R&D leases were executed during the second quarter

throughout Greater Boston. At 13 Centennial Drive in Peabody, DHL

Global took down 67,098 square feet and Pilot Frieght Services leased

almost 49,000 square feet. Agiliti Health leased 19,200 square feet at 19

Connector Road in Andover and Temptronic inked a deal for roughly

59,000 square feet at 35-41 Hampden Road in Mansfield.

• Investors have also been active in Greater Boston’s Flex/R&D market.

Shetland Park in Salem, which includes two Flex/R&D properties, sold to

Prime Group Holdings for $70 million or roughly $67/SF. The cap rate on

the deal was 9.3%. Berkeley Partners also acquired a Flex/R&D building

in Marlborough from Calare Properties. The property, 417 South Street,

sold for $14.2 million or $97/SF. Finally, New Balance purchased the

80,000-square-foot 596 Lowell Street in Methuen and plans to reposition

the property into a state-of-the-art manufacturing facility.

VACANCY BY SUBMARKET

NET ABSORPTION & ASKING RENT

BLOOMBERG MASSACHUSETTS HIGH TECH INDEX

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017 2018

-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

$12

0%

4%

8%

12%

16%

20%

2013 2014 2015 2016 2017 2018 2019

ROUTE 495/METROWEST ROUTE 128 URBAN CORE


INDUSTRIAL MANUFACTURING

TOTAL INVENTORY(SF)

TOTAL VACANT(SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT($/SF)

Total 34,843,011 3,245,853 9.3% 197,767 659,777 $10,05

• Positive momentum held through the second quarter in Greater

Boston’s manufacturing market. With another roughly 198,000 square

feet of positive absorption, vacancies declined to 9.3%. Over the last

two quarters, manufacturing vacancies have fallen by nearly 100 basis

points. Manufacturing fundamentals remain dynamic and demand

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

production and high-tech manufacturing. As such, market fundamentals

should remain positive in the near-term outlook.

• Shoe maker, New Balance, is opening a new, state-of-the-art

manufacturing facility in the Greater Boston area. New Balance purchased

the 80,000-square-foot 596 Lowell Street in Methuen for $8 million or $100

per square foot in May and plans to create a “factory of the future” with

advanced manufacturing and R&D operations. The site is expected to be

operational in about 12 months.

• Food manufacturers are expanding locally as well. Cedar Foods is

currently developing a 125,000-square-foot production facility in Haverhill

and will bring 125 new jobs to the area. This will bring the firm’s regional

footprint to 375,000 square feet. Tatte Bakery and Cafe is also opening a

production facility and test kitchen in South Boston. The 30,000-square-

foot operation will be located in the former Cole Hersee Building at 60-70

Old Colony Ave.

• Manufacturing product also continues to face redevelopment. A.W. Perry

is planning to acquire the Garelick Farm plant in Lynn. Ultimately the

dairy factory is slated for conversion into a mixed-use development with

waterfront apartments. The former Ardagh bottling plant at 1 National

Street in Milford is also being repositioned into a warehouse/distribution

center. The new owner is planning to add more loading docks to the

property and upgrade parking.

• 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

$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

-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%


NOTABLE TRANSACTIONS

155 SHEPARD STREETLAWRENCE

400 MANLEY STREETWEST BRIDGEWATER

13 CENTENNIAL DRIVEPEABODY

40 ROBBIE ROADAVON

Company Unitex Healthcare Company M & M Transportation Company DHL Global Company Tighe Logistics

Size 188,653 SF Size 86,877 SF Size 67,818 SF Size 67,098 SF

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

374 MERRIMAC STREETNEWBURYPORT

35-41 HAMPDEN ROADMANSFIELD

15-21 UNIVERSITY ROADCANTON

13 CENTENNIAL DRIVEPEABODY

Company Merson-USA Company Temptronic Corp. Company Prodrive Tech Company Pilot Freight Services


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

200 AMES POND DRIVETEWKSBURY

500 RESEARCH DRIVEWILMINGTON

19 CONNECTOR ROADANDOVER

420 PEARL STREETMALDEN

Company WellPet Company Parterre Flooring Company Agiliti Health Inc. Company SunSetter Products


Submarket Route 495 Northeast Submarket Route 128 North Submarket Route 495 Northeast Submarket Urban Core


CAPITAL MARKETS

• Greater Boston’s industrial asset class is still a darling among investors.

While total investment sale volume dipped slightly over the quarter, more

than $1 billion in industrial and Flex/R&D assets changed hands during

the first half of 2019. Tight market fundamentals have led to consistent

investor interest, which has been driving up pricing. Developers looking to

meet the city’s ever-growing need for housing and other commercial uses

are keeping prices elevated as well. The median price per square foot hit

a cyclical peak during the second quarter; reaching $117 per square foot.

• Suburban industrial properties dominated the recent investment sale

landscape. Credit-tenant anchored warehouse/distribution centers

accounted for several of the metro’s largest transactions during the second

quarter. Bentall Kennedy acquired FedEx’s facility at 30 Superior Drive

in Natick for more than $51 million while Cabot Properties purchased

Amazon-anchored 12 Industrial Drive in Milford.

• Developers look to reposition older, outdated assets in key urban

locations. National Development purchased 20-50 Old Colony Road in

South Boston likely with plans to redevelop the parcels.

MEDIAN PRICE/SF

TOP Q1 / INVESTMENT SALES

108 CHERRY HILL DRIVEBEVERLY

30 SUPERIOR DRIVENATICK

12 INDUSTRIAL DRIVEMILFORD

1 KAY WAYSTOUGHTON

Buyer Broadstone Real Estate, LLC Buyer Bentall Kennedy Buyer Cabot Properties, Inc. Buyer Morgan Stanley Real

Estate

Price $76,000,000 Price $51,700,000 Price $33,600,000 Price $17,250,000

Total SF 394,075 Total SF 173,120 Total SF 327,237 Total SF 104,545

Price/SF $193 Price/SF $299 Price/SF $103 Price/SF $165

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

SALES VOLUME($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN($/SF)

MEDIAN CAP RATE

$474 M 101 4.9 M $117 7.8%

SALES VOLUME

$140

$120

$100

$80

$60

$40

$20

$0

2008 201420132012201120102009 2015 2016 2017 2018 2019

$800

$600

$700

$500

$400

$300

$200

$100

$0

$(m

illio

ns)

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


TOTAL INVENTORY

(SF)

UNDER CONSTRUCTION

(SF)

DIRECT VACANT

(SF)

SUBLEASE VACANT

(SF)

TOTAL VACANCY

RATE

Q2 NET ABSORPTION

(SF)

YTD NET ABSORPTION

(SF)

ASKING RENT NNN

($/SF)

Urban Core 18,690,278 150,000 1,881,941 34,176 10.3% 122,478 (1,783) $16.06

Framingham-Natick 3,182,438 - 90,194 - 2.8% 23,409 18,842 $9.41

Route 128 North 28,742,705 - 1,641,605 78,109 6.0% 19,721 40,589 $11.77

Route 128 Northwest 3,785,373 - 146,815 - 3.9% 40,275 36,754 $15.16

Route 128 South 39,488,384 397,500 3.046,504 19,440 7.8% (13,728) (187,276) $7.80

Route 128 West 4,426,603 - 332,550 - 7.5% 66,107 5,749 $19.51

Route 128 Total 76,443,065 397,500 5,167,474 97,549 6.9% 112,375 (104,184) $10.03

Route 495 North 22,443,875 - 2,768,947 4,000 12.4% (47,814) 215,612 $9.62

Route 495 Northeast 12,727,617 - 1,056,320 85,414 9.0% 49,692 203,976 $7.82

Route 495 South 33,226,814 1,211,000 2,278,392 12,941 6.6% 912,267 1,091,811 $6.67

Route 495 West 16,148,386 825,438 1,550,562 12,643 9.7% (137,580) (57,421) $9.88

Route 495 Total 84,546,692 2,036,438 7,654,221 114,998 9.2% 776,565 1,453,978 $8.55

Market Total 182,862,473 2,583,938 14,793,830 246,723 8.2% 1,034,827 1,366,853 $10.02

INDUSTRIAL RECAP

METHODOLOGY

Source: Co-Star, Hunneman. Prepared: June 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.

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

LIZ BERTHELETTEDirector of Research

[email protected]

JAMES FIFTALSenior Research Analyst

[email protected]

MARKET REPORT… · • Food manufacturers are expanding locally as well. Cedar Foods is currently...

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