After Historic Boom, Warehouse Development In Greater Boston Falls By 80%

Greater Boston delivered a record amount of industrial space last year, punctuated by a massive five-story Amazon warehouse that completed in the fourth quarter. 

But now, the pandemic-era boom has begun to evaporate. 

The region had 1.2M SF in the industrial construction pipeline at the start of the year, 80% lower than one year earlier, according to Newmark's latest market report, which says much of that new construction hasn't been leased. 

"We are starting to see a slowdown in the industrial sector, and that is true across the U.S.," Newmark Research Director Elizabeth Berthelette said. "Whereas maybe office or life science, we started to see these corrections earlier in the cycle, we’re now kind of flowing into the industrial sector."

Vacancy in the region has risen for six consecutive quarters, reaching 5.9% at the end of the year, up from 3.2% at the end of 2022.

"We've got also a wide range of other spec products that are either sitting vacant that we finished last year or are close to wrapping up completion and aren't leased," said Jason Grant, president at Arco New England.

The Amazon facility that delivered in Q4, a 3.3M SF project in North Andover, was by far the largest project of last year and seems to mark the end of the company's pandemic-era expansion in the region. 

In the early years of the pandemic, Amazon expanded throughout the state, with new warehouses developed in Worcester and Westborough. In 2022, Amazon completed a 2.8M SF distribution facility in the western Massachusetts town of Charlton.

However, the e-commerce leader in 2022 began to postpone or cancel dozens of warehouse projects and put millions of square feet on the sublease market across the country. It closed five Massachusetts warehouses that year in Milford, Dedham, Everett, Randolph and Mansfield, Patch reported. 

"Amazon, in a very holistic view, has slowed their growth, and that's not just in our market, that's in a lot of markets," Berthelette said. "I do think that e-commerce will always be a driver of demand, particularly in places like Boston that are very dense and have high populations."

Although the market has shifted in tenants' favor, developers are still building some speculative industrial projects across the region. 

"I think there is a lot of supply coming online in the market, some of which is concerning," said Tucker Kelton, founder and managing partner at Camber Development. "But when you really dig into where that supply is located, you get a better sense of the fundamentals of the market."

He added that the oversupply is highest in submarkets outside of I-495, to the west and south of Boston. 

Camber, in partnership with Wheelock Street Capital, is working on a 238K SF distribution project inside the I-495 belt in Wilmington, which received $57M in construction financing in January. Kelton said he is confident the project will lease up because of the type of activity he has seen play out at similar properties.

"Leasing market fundamentals still feel strong in Greater Boston," he said. "The demand for our existing portfolio as well as our ground-up development projects feels strong and has continued to feel strong despite the disruption and dislocation in the capital markets."

Brendan Pellerin, director of asset management for Berkeley Partners, said in an email that Boston's diverse industries like education, healthcare and life sciences benefit the logistics sector. He said that with the rise of in-store shopping, the need for warehouses will be bolstered more by the retail sector. 

"However, as the 2020-2021 lockdowns appear further and further in our rear view, I think we’re starting to see a trend of the public flocking back to open-air retail centers, with that will come the need for warehouse space, and the current survey activity supports those retail users are getting ready to engage the market if they haven’t already,” he wrote.

Earlier this week, The Davis Cos. announced that Chelmsford-based medical device company Zoll Medical Corp. signed a lease to occupy more than 111K SF at 38 Upton Drive in Wilmington, the Boston Business Journal reported. The company is consolidating the warehouse space into one distribution and manufacturing facility.

In January, semiconductor manufacturer Axcelis Technologies leased 96K SF at Tom Ford's 105 Sam Fonzo Drive distribution center in Beverly, the Boston Real Estate Times reported. The site will act as its distribution and fulfillment center.

Large national tenants are looking for space in the market but aren't quick to lease, Arco's Grant said, as they are waiting for interest rates and other capital market fundamentals to improve.

Arco was part of the team that developed the 607K SF Blackstone Logistics Center, which attracted one of the largest industrial leases of the year. In December, medical distribution company McKesson Corp. signed a 440K SF lease at 40 Lackey Dam Road in Uxbridge, the Boston Business Journal reported.

"We have seen some bigger national market players out there, but they're the same groups that have been out there for a few years, and so we haven't seen any new big pushes," Grant said. "Similar to how developers are pumping the brakes in terms of taking risks on doing a spec building, we're seeing a lot of end users play that same game."

He said that in markets like Hartford, Connecticut, Arco has seen success with larger tenants like Lowe's and Wayfair moving into massive projects. But that activity isn't being seen in Greater Boston.

"In the Boston market, the bigger distribution users like that, other than the couple that I mentioned that the leases got executed, we haven't seen a ton of activity," Grant said.

The manufacturing segment of the industrial sector has seen a major boost in recent quarters, as biomanufacturing and emerging fields including climate tech and tough tech have been expanding. This growth has caused demand to accelerate and developers to push forward with projects. 

"We have seen a push in the manufacturing space, whether that's advanced manufacturing, light manufacturing, assembly," Grant said. "I think that kind of industry is pushing a lot of deals forward at the moment."

However, deals for new distribution and logistics facilities have become rare, especially as land in densely populated areas near the city becomes scarcer. He said he expects larger distribution center projects will happen farther away from the city. 

"They're going to be few and far between, and I don't think that's necessarily because the Covid push happened," Grant said. "I think that's just more so the market that we're in. I think those deals, they're going to be few and far between anyways, unless you're in a more southern pure distribution market."