Boston Industrial Market in its Prime

Transwestern| RBJ's fourth-quarter 2015 report reveals Greater Boston's industrial market is strong across the board and examines the key factors for the rise and fall of each segment.
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Chase Bourdelaise, Director of Research, Northeast Region, Transwestern

Transwestern | RBJ’s “indSTATus – Fourth Quarter 2015” report revealed Greater Boston’s industrial market had strong results in all three property types—Warehouse, Flex and Manufacturing.

The firm’s quarterly research report examines Greater Boston’s industrial property market and looks at the key factors behind the rise and fall of each segment.

“Both the office and industrial markets in Greater Boston are performing very strongly. Demand for high quality industrial space is higher than ever as options remain limited,” Chase Bourdelaise, the company’s director of research, Northeast Region, told CPE. “The overall market and several submarket sectors are experiencing all-time record low vacancies and asking lease rates.”

The report notes that the Greater Boston industrial market, comprised of warehouse and manufacturing space, experienced the sixth straight quarter of positive absorption with 344,000 square feet coming in the fourth quarter of 2015.

Among its most notable findings, the report showed that warehouse vacancy hit a record low of 11 percent, down from 11.4 percent last quarter and 4.7 percentage points lower than the five-year average of 15.7 percent. Overall, tenants absorbed 239,000 square feet of space with average asking rents for warehouse space in Greater Boston remaining in the high five-dollar range, increasing 2.4 percent from last quarter to $5.92 per square foot.

Manufacturing vacancy dropped into single digits for the first time on record, dropping to 9.9 percent from 11 percent last quarter. Bourdelaise added that a diverse tenant base is driving these positive results.

“Improved production from the manufacturing sector helped snap a two-quarter negative absorption streak, with 104,000 square feet of positive absorption coming this quarter and 229,000 square feet of positive absorption seen in 2015,” the report said. “Vacancy dropped 1.1 percentage points to 9.9 percent, reaching single-digit vacancy for the first time on record. Average asking rents rose 5.6 percent to $8.09 per square foot, breaching the eight-dollar mark for the first time since the midpoint of 2008.”

Vacancy in flex properties dropped to 13.9 percent, the lowest level since 2001 and down from 15.3 percent in third-quarter 2015.

“Despite a small hiccup last quarter, the flex market also saw increased absorption, decreased vacancy and increased average asking rents, with 327,000 square feet of positive absorption dropping vacancy from 15.3 percent to 13.9 percent, the lowest level since 2001,” the report said. “Average asking rent increased 6.1 percent to $9.22 per square foot, reaching the nine-dollar range for the first time since 2008.”

Bourdelsaise added that, “All three sectors have seen very little new construction and the industrial property market is supply-constrained.”

He also has a positive outlook for the overall sector. “As long as consumer spending is up and job growth remains steady, we’ll see the industrial market continue to grow,” Bourdelaise said. “In addition, the leasing fundamentals on the demand and supply side remain very healthy with limited new construction on the horizon.”