Industrial Tenants Want To Be Near Logan, But Buildable Land Is Scarce
As Greater Boston's industrial development has cooled down from its pandemic-era boom, logistics companies looking to be close to major urban transportation hubs are having a difficult time finding space.
The Boston industrial market is seeing lower vacancy and higher rents compared to neighboring suburban areas due to land constraints and tenant demand for proximity to Boston Logan International Airport.
The urban submarket had a 5.8% availability rate in the second quarter compared to the 8.2% across the Greater Boston area, according to CBRE.
The city also saw the highest rents of all Greater Boston submarkets at $27.34 per SF compared to the average of $15.24 per SF, according to CBRE. The high rents have been exacerbated by limited developable land and available industrial options.
Industrial developers speaking Tuesday at Bisnow's Boston Industrial and Logistics Summit said that projects close to the airport are prime for logistics tenants looking to transport goods.
"I think demand in the urban core certainly is the golden rule of real estate, where it just starts with location, location, location." JLL Senior Vice President Chelsea Andre said at Tuesday's event, held at Hines' Chelsea Point.
"Only being two and a half miles to Logan Airport, hearing airplanes going over the event today, that's certainly the biggest demand driver for urban development," Andre added.
The 146K SF industrial project broke ground in June 2023 after Hines acquired the site at 250 Marginal St. as part of a bigger industrial portfolio in 2022 for $68M. Hines demolished the building that originally stood on the site to create the new urban infill site.
Arthur Barrett, president of Barrett Distribution Centers, said that although Hines' Chelsea Point isn't the type of industrial property his firm would historically gravitate toward, the location is a big selling point for many distributors.
"20 years ago, we would have killed a deal like this," Barrett said. "These are the types of buildings that we operate in other markets. The proximity of this quality of an asset, this close to the airport, gives this building a great advantage."
Total airport freight coming into Boston both domestically and internationally was 22 million pounds at the end of July, up 17% from July 2023 and up 3.4% year-to-date compared to last year, according to MassPort. The airport also saw 4 million airport passengers come through the airport in the same month.
"Logan Airport is absolutely bursting at the seams in terms of how active it is as a small airport," Andre said, adding that it sees as many flights as Miami International Airport despite having a 32% smaller footprint.
Logan has the second-smallest footprint among the top 20 major American airports, according to Massport.
The industrial submarket around the airport has seen increased demand pressures as tenants have been displaced from other urban submarkets like Kendall Square and the Seaport that have seen industrial properties redeveloped to life sciences, multifamily and mixed-use development, Andre said.
"I think anytime you're looking at an urban [industrial] project, it's typically a series of compromises in order to make your numbers work," said Tom Griggs, managing director of logistics at Hines.
The scarcity of developable sites in prime locations close to the airport can benefit well-established developers in the city banking on the high demand.
"Land is extremely rare here in the metro Boston," Oliver Street Capital Director of Development & Construction Michael Shunta said. "You have very high site cost here in Massachusetts."
Oliver Street Capital has over 54 properties in Massachusetts with seven properties surrounding Boston Logan Airport in Everett, Chelsea, Boston and Revere, according to its website. Shunta said that, unlike other markets he works in, Boston is a dense market with far and few greenfield developable sites.
"Everybody's trying to outsmart their peers, their friends," Shunta said. "Might try to be a little strategic to try to find sites, such as the one we're sitting in, where you can find something that is potentially prime for repurposing or redevelopment opportunities."
Space is so tight that the city has made concerted efforts to preserve the amount of industrial space it still has.
The city planning department adopted a new planning guide in 2023 for the Newmarket neighborhood, one of the city's major industrial manufacturing and distribution hubs. The zoning update sought to preserve its industrial character and bring new opportunities to the neighborhood.
Looking ahead, some developers are refocusing on the real estate fundamentals that were lost during the hot streak during the pandemic, Rhino Capital Managing Principal Michael Olson said.
"I think groups do want to have proximity to the highway," he added. "They do want to be in a functional box with ample loading, with good truck ports, with places to put outdoor storage. And those are things that were abandoned for a while because it was so crazy and vacancy got so low."
