Rents Zoom Upward In Greater Boston's Industrial Market As 'Supply Crisis' Looms

A supply crisis is looming for Boston’s industrial market, with unprecedented demand continuing to drive record low vacancies and double-digit asking rent increases.

Greater Boston has just 2.5% vacancy among its more than 266M SF of inventory, according to CBRE's Q2 2021 Boston Industrial report. Vacancy shrank significantly from the 3.8% recorded in Q1, and average asking rents inched up from $10.27 per SF in Q1 to a new high of $10.53 per SF, an "unprecedented" 14.8% year-over-year increase, according to CBRE. 

Approximately 35M SF of active tenant requirements are in the market in Greater Boston, CBRE reported, a need that experts said won’t be met soon. 

“We’ve never seen demand outpacing supply,” CBRE Senior Vice President Rachel Marks said in an interview. “This is new territory.”

Demand is coming from wholesalers, third-party logistics, life sciences and e-commerce users, and experts anticipate rents will continue to rise. The fundamentals have pushed Boston up with the country’s most historically dominant industrial markets, registering the sixth-largest year-over-year rent growth in the country, according to CBRE's report.

“With only 801K SF of speculative development under construction, and potential future development sites dwindling, a supply crisis is on the horizon for the Greater Boston industrial market," Marks, CBRE's industrial market practice leader in Greater Boston, said in a statement with the report.

Tenants are clinging to their space; extensions accounted for five of the six largest lease transactions in Q2 over 86K SF, according to Newmark research. The largest was Autopart International’s extension for its 347K SF space at 192 Mansfield Ave. in Norton, a building owned by Northbridge Partners according to Bristol County land records. 

Amazon secured a combined 306K SF across new developments in Bridgewater and Plymouth in the quarter, according to CBRE, showing it is not satisfied with its dominant position in the market. The e-commerce behemoth touts 10.5M SF in Greater Boston and is expected to finish the year touting approximately two dozen facilities within the Interstate 495 belt.

Just eight speculative projects are under construction across Greater Boston, and 67% of the total 2.4M SF of industrial space under construction is pre-leased, according to CBRE. Projects are increasingly getting pre-leased during the construction phase, further limiting options for active requirements, Newmark Director of Research Elizabeth Berthelette said.

Other big-box retailers continue to seek a combined millions of SF, according to Colliers. The demand is part of the e-commerce market expected to require 330M SF of new space nationwide by 2025. 

Developers are reaching into Central Massachusetts, Southern New Hampshire and the Rhode Island market to meet the massive requirements, Marks said.

“As we’re looking at how their site selection process works, they’re choosing sites that are easily accessible to a number of dense population areas that aren’t necessarily cities,” she said. “It’s a pretty sophisticated site selection process in order to reach other densely populated towns.”

Biomanufacturing demand from the region’s exploding life sciences industry continues to cut into the industrial market, further pressing vacancy and rents. More pharmaceutical and therapeutic startups are reaching late-stage clinical trials that require small-scale production runs, Berthelette said. 

“A lot of the demand we’ve seen recently that’s turned into actual leasing velocity has been from CDMOs, a third-party bio manufacturer,” she said, referring to contract development and manufacturing companies. “Those users have been very active as well as seeing that demand from those early-to-mid-stage life sciences companies that are reaching critical mass.”

The region’s supply crunch has led a few developers to tear down aging, vacant office inventory and build new industrial facilities despite the increased costs, researchers said. Such projects are occurring along the Interstate 495 belt, Colliers Director of Research Aaron Jodka said.

The Davis Cos. plans to tear down two office structures at 199 and 201 Riverneck Road in Chelmsford to make way for a 200K SF distribution facility, according to Colliers. Amazon in the past year also received approval from the town of Littleton to tear down two office buildings for a new distribution center. 

"With the fundamental shift and change within the industrial property demand trends and tenant activity, industrial in some cases is now a higher economic use for land than suburban office,” Jodka said.