Q1-2018-IndustrialReport

METRO BOSTON Q1 2018 | INDUSTRIAL REPORT

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

ASKING RENT ($/SF)

UNDER CONSTRUCTION (SF)

7.7%

511,162

$8.97

2,386,106

1

303 Congress Street | Boston, MA 02210 | 617.457.3400 | www.NAIHunneman.com

Q1

INDUSTRIAL STATISTICS WAREHOUSE

2018

WAREHOUSE

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

TOTAL

93,170,977

6,272,456

6.7%

295,600

295,600

Total Vacancy

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 017 Q3 2017

14%

Total Vacancy TOTAL VACANCY 12%

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 TRENDS • Activity abounds in the Greater BostonWarehouse market, with net absorption totaling roughly 788,000 square feet over the past four quarters and vacancies trending below 8% for the last eight quarters. Move-ins fromWilliams Sonoma in Taunton, Zippyshell in Hyde Park, and S.G.Torrice Company in Mansfield drove much of this quarter’s activity. Strong leasing and persistent demand across multiple industrial sectors, including e-commerce, bodes well for warehouse market fundamentals in the near term. • Robust growth has characterized the Greater Boston Warehouse market over the last five years. A majority of both supply and demand growth occurred in the region’s top distribution hubs; Route 495 South and Route 128 South, which account for nearly 50% of the metro’s total warehouse inventory and 43% of total net absorption since 2013. With that said, fundamentals have improved swiftly in most other markets as well. Both Route 495 North and Northeast posted double- digit vacancy declines over the last five years, and 6 out of the 10 industrial submarkets in Greater Boston boast sub-5% vacancies as of the first quarter. • Built-to-suit construction and preleasing have been driving activity as well. The 57,300-square-foot 45 Panas Road in Foxborough delivered this quarter, fully occupied by IDI Distibutors. Baldor Boston, LLC executed a lease for 100,000 square feet at a new facility in Chelsea. National Development and Charles River Realty Investors demolished a 37,000-square-foot industrial building at 130 Eastern Avenue and plan to develop a fully-refrigerated wholesale center on the site. Spears Manufacturing is also building a new 112,500-square-foot distribution center adjacent to the Norton Commerce Center. Some developers have opted for speculative construction.The Gutierrez Company recently broke ground on a 220,106-square-foot facility at the Crossroads Industrial Park in Northborough. Campanelli continues to move forward on the 127,500-square-foot 353 Maple Street and the 300,000-square-foot 351 Maple Street, both in Bellingham.All three projects are slated to deliver by the end of this year.While the construction pipeline has expanded, developers will likely struggle to keep pace with tenants’ robust demand for modern, state-of-the-art warehouse product. • A handful of large vacancies hit the market this quarter. Crystal Cold Storage moved out of 90,855 square feet at 15-23 Sycamore Avenue in Medford while Crown Cork & Seal put 85,414 square feet on the sublease market at 14 Aegean Drive in Methuen. In Revere, Mark’s Distributors consolidated out of 70,000 square feet at 2050 Revere Beach Parkway and Expeditors International vacated 79,500 square feet at 3 Technology Drive in Peabody. • Until recently, rather tepid rent growth has characterized the local and national warehouse markets. From 2014-18, lease rates increased by more than 20% in Greater Boston, with a majority of the gains occurring over the last five quarters.

10%

14%

12% 8%

10% 6%

4%

8%

2%

6%

5-Year Historical Average = 9.2%

0%

4%

2013

2014

2015

2016

2017

2018

2%

0%

2013

2014

2015

2016

2017

2018

NET ABSORPTION & SUPPLY Net Absorption

2,500

Net Absorption 2,000

2,500

1,500

2,000

1,000

SF (000s)

1,500 50

1,000

0

SF (000s)

500

-500

g Rent /SF) $7.29

2013

2014

2015

2016

2017

2018

Net Absorption New Supply

0

-500

2013 NOTABLE TRANSACTIONS Notable Transactions 2014

2015

2016

2017

2018

Net Absorption New Supply

Williams Sonoma

Anixter

Baldor Boston

Chex Finer Foods

Ocean Air

40K SF

65K SF

90K SF

115K SF

140K SF

Route 495 South Route 495 West

Urban Core Route 495 North

2

INDUSTRIAL STATISTICS FLEX / R&D

FLEX / R&D

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

TOTAL

52,248,295

5,072,998

9.7%

276,091

276,091

Vacancy by Submarket

19%

17%

Vacancy by Submarket VACANCY BY SUBMARKET 14%

TRENDS • Greater Boston’s Flex/R&D market continues to benefit from the growing tech, biotech, and light manufacturing industries. Vacancies ended the first quarter at 9.8% as the market absorbed more than 200,000 square feet. CustomSpace took occupancy of close to 75,000 square feet at 1515 Washington in Braintree and Urban Air Adventure Park moved into 40,000 square feet at the newly constructed 189 Mechanic Street in Bellingham. AmericanBio and Monogram Foods also took down roughly 23,000 square feet each in Canton and Wilmington, respectively. Persistent demand from technology-related companies is expected to drive growth in the local Flex/R&D market in the coming quarters. • The Route 128 Loop boasts some of the strongest Flex/R&D fundamentals in the region. Vacancies ended the first quarter of 2018 at just 6%, which are less than half of those in the Route 495 Loop and well below the Urban Core. Asking rents are well above the metrowide average, at $14.17/SF. However, space in close proximity to Boston maintains a $9-10/SF premium over space located in Route 128 South and Route 128 North. Users like Mighty Squirrel (23,000 SF), Medrobotics (20,000 SF), and VEO Robotics (12,000 SF) are the types of firms taking down space in the Route 128 markets. • Massachusetts maintains one of the nation’s top robotics clusters, and continued growth in this industry has bolstered demand for local Flex/R&D space. In the third quarter of last year, NextShift Robotics inked a deal for 22,450 square feet at 1001 Pawtucket Boulevard in Lowell — recently taking occupancy of the space. Medrobotics signed a lease for 20,000 square feet at 220 Paramount Drive in Raynham. Moreover, Amazon Robotics is in the market for 300,000 square feet of space as well. As technologies continue to advance for medical users, consumer goods, and e-commerce, look for continued growth in the robotics industry. • There were only a handful of major move outs in the first quarter. Beaver Visitec International vacated more than 83,000 square feet of flex space at 425 Waverley Oaks Road in Waltham and Barnette Inc. vacated 20,000 square feet at 378 Commercial Street in Malden. SCP Pool Corporation is also planning to move out of 39,979 square feet at 12 Parkwood Drive in Hopkinton in early 2019. • With vacancies declining by 650 basis points over the last 5 years, it’s not surprising Flex/R&D lease rates are surging in Greater Boston. Space runs from $8-$10/SF in the Route 495 Loop to the high-teens to low-twenties in the Route 128West/Northwest and Urban Core submarkets. Overall asking rents surpassed $11/SF in the first quarter; increasing by 6.8% over the last 12 months. Infill locations, close to population centers, have seen the steepest inclines in recent years. From 2014-18, Flex/R&D asking rents expanded by 70% in the Urban Core, 41% in Route 128 Northwest, and 30% in Route 128West.As fundamentals remain strong, look for more rent gains in the near future.

12%

19%

10%

17%

7%

14%

12%

5%

10%

2%

0%

7%

2013

2014

2015

2016

2017

2018

5%

Route 495/Metrowest

Route 128

Urban Core

2%

0%

2013

2014

2015

2016

2017

2018

Route 495/Metrowest

Route 128

Urban Core

NET ABSORPTION AND ASKING RENT Net Absorption and Asking Rent

700

$12

600

Net Absorption and Asking Rent

500

$10

700

$12

400

600

300

$8

500 SF (000s) 200

$10

400

100

$6

300

$8

0

200 SF (000s)

-100

$4

2014

2015

2016

2017

100

$6

Net Absorption

Asking Rent

0

NOTABLE TRANSACTIONS

-100

$4

2014

2015

2016

2017

Net Absorption

Asking Rent

Route 495 West Route 128 South Route 128 West Route 495 South

3

Q1

2018

T h e L AST M I L E i s d e f i n e d d i f f e r e n t l y b y s o u r c e s b u t b a s i c a l l y i s t h e l a s t l e g

BOSTON LAST MILE BUILDINGS

NUMBER OF BUILDINGS BY YEAR BU I LT: <1950: 56

MED I AN AGE : 1960 MEDIAN SIZE: 40,500 SF MEDIAN CEILING HEIGHT: 16’-20’

1951-1970: 58 1971-1980: 16 1981+: 20

SPEED TO DELIVER CRITICAL FOR THE RETAILER TO LOCATE CLOSE TO END CUSTOMERS

RENT GROWTH FROM Q1 2016 – Q1 2018

LAST MILE: 34% URBAN CORE SUBMARKET: 31% ALL INDUSTRIAL: 26% ROUTE 128 WEST/NORTHWEST: 25%

LAST MILE VACANCY & NET ABSORPTION

$16

$14

$12

$10

$8

$6

$4

$2

LAST MILE ASKING RENTS $0 2008 2009 2010 2011 2012

2013

2014

2015

2016

2017

2018

4

f a p r o d u c t ’ s t r i p b e f o r e i t a r r i v e s a t a c o n s ume r ’ s d o o r .

AMAZON LAST MILE LOCATIONS

EVERETT: DELIVERY SORTATION FOR LAST MILE & AMAZON PANTRY / FRESH

BOSTON: PRIME NOW HUB - SAME DAY ITEMS

DEDHAM: DELIVERY SORTATION FOR LAST MILE

I ndu s t r i a l bu i l d i ng s , 2 5 , 0 0 0 SF - 2 0 0 , 0 0 0 SF, i n c l o s e p r o x i m i t y t o mo s t popu l a t e d l o c a t i on s .

3 MILES

7 MILES

10 MILES

5

Q1

INDUSTRIAL STATISTICS MANUFACTURING

2018

MANUFACTURING

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

Vacancy and Net Absorption

TOTAL

34,953,695

2,456,778

7.0%

(60,529)

(60,529)

600

10%

400

2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017

8%

200

VACANCY & NET ABSORPTION Vacancy and Net Absorption 0

TRENDS • Vacancies in Greater Boston’s Manufacturing market inched up by ten basis points during the first quarter of 2018. Move-outs from Zoots Cleaners in Brockton, General Mills in Methuen, and United HVAC in Hingham contributed to this quarter’s negative absorption, while an owner-user sale at 29 Everett Street in Holliston took 53,510 square feet off the market. With that said, rates are still 100 basis points below year-ago levels, and market conditions remain favorable for all industrial product types. Moreover, average asking rents continue to climb; surpassing $8.50/ SF in the first quarter. • Manufacturing sites are finding new life as self-storage facilities in Greater Boston. In the fourth quarter, a Utah-based self-storage company purchased 120 N. Main Street in Brockton with plans to convert the manufacturing facility into a 75,000-square-foot self-storage facility. Following the sale the previous owner-user, MicroWire Products Inc., shifted its manufacturing operations and relocated into 18,000 square feet at 5 Mear Road in Holbrook. In Framingham, Eastland Partners acquired a vacant manufacturing facility at 120 Leland Street with plans to also construct a new self- storage facility. Self-storage assets have performed exceptionally well this cycle as the heated housing market, downsizing Baby Boomers, and urban population growth have propped up demand. If this sector continues to perform well, the region could see more investment in self-storage facilities. • Some large blocks of manufacturing space could hit the market in the coming quarters. Ireland-based,Ardagh Group, announced plans to close its Milford beer bottling plant and lay off more than 200 workers. New England Confectionary Company (maker of NECCO wafers) is facing bankruptcy, which could result in the closure of the firm’s 829,000-square-foot Revere facility. The candy maker already downsized its operations by nearly 150,000 square feet in the third quarter of last year. • The region’s bustling life science industry continues to drive manufacturing activity in Greater Boston. Sanofi Genzyme is expanding its Framingham footprint, with plans to build a new 72,000-square-foot bio-manufacturing facility. King Street Properties recently purchased the former headquarters of the MetroWest Daily News on New York Avenue in Framingham. The life science developer/owner plans to renovate the property into a 107,350-square-foot multi-tenant life science facility. Finally, Waters Corp., a scientific equipment maker, plans to add 135,000 square feet to its Taunton facility, which will be operational by 2022. • There is currently several hundred thousand square feet of manufacturing space under construction, with 100% of it preleased. Most notably, Pfizer is constructing a 175,000-square-foot facility at its campus on Burtt Road in Andover and Insulet is redeveloping 100 Nagog Park into a 325,000 square foot facility. 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2017 2017 2018 2017 2017 2018

6%

-200

600

10%

4%

SF (000s)

-4 0

400

8%

2%

-6 0

200

6%

0 -8 0

0%

2013

2014

2015

2016

2017

2018

-200

Net Absorption

Vacancy

4%

SF (000s)

-400

2%

-600

-800

0%

2013

2014

2015

2016

2017

2018

Net Absorption

Vacancy

ASKING RENT Asking ent

$10

$8

Asking Rent $6

$10

$4

$8

Asking Rent ($/SF) $6 $0 $2

tion 529)

2014

2015

2016

2017

$8.54

$4

NOTABLE TRANSACTIONS Notable Transactions

$2

Ho Toy Noodle

$0

Mystic Brewery 2014

2015

2016

2017

Mass Electric Construction

A & M Welding Fabrications

Millenium Printing

10K SF

35K SF

60K SF

85K SF

110K SF

Route 128 South Urban Core Route 128 West

6

aners in Brockton, General

CAPITAL MARKETS STATISTICS Property 135 Will Drive Property City/Submarket Canton 135 Will Drive

Property

400 John Quincy Adams Road 400 John Quincy Adams Road Taunton Stockbridge Capital Group LLC Taunton Stockbridge Capital Group LLC $22,000,000

Property City/Submarket City/Submarket Buyer

City/Submarket Canton Buyer

Equity Industrial Pa Equity Industrial Pa $21,000,000

Buyer Price

Buyer Price Price Total SF Price/SF Cap Rate Total SF Price/SF Cap Rate

Price

$22,000,000 3 0, 0

$21,000,000 415,796

Total SF Price/SF Cap Rate

Total SF Price/SF Cap Rate

MEDIAN $/SF 300,000 $73 $73 4.0%

415,796 $51

SALES VOLUME ($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN CAP RATE

$51 8.50% 8.50%

4.0%

$450,459,694

92

5,215,783

$92

6.3%

Sales Volume

Sales Volume SALES VOLUME

$700

TRENDS • Industrial is the new darling of commercial real estate investors; both locally and nationally. Record-low vacancies and skyrocketing rents have led to unprecedented levels of activity in Greater Boston’s industrial market in recent years.While sales volume in other asset types has been steadily declining over the last year, industrial transactions have held steady. Nearly $1.8 billion in industrial assets changed hands in 2017, which is on a par with peak-2016 levels, and activity remained strong during the first quarter of 2018. Pricing continues to climb as well, with the median price per square foot surpassing $90 in the first quarter. This represents a 7.4% increase from year-ago levels and a 48.4% increase over the last five years. • Flex/R&D properties accounted for a third of the total industrial sales volume in the first quarter. The transactions were fairly evenly dispersed throughout the region, with CalSTRS sale of the 300,000-square-foot 400 John Quincy Adams Road in Taunton and Riverside Properties’ acquisition of the 94,764-square-foot 561Windsor Street, Somerville representing two of the largest deals in the first quarter. Pricing remains frothy for Flex/R&D properties in Greater Boston, with the median cap rates declining to 5.25% in early 2018. Comparatively, median cap rates for this asset class were close to 10% nearly a decade ago. • Several industrial portfolios traded during the first quarter, with institutional buyers accounting for 51% of total transaction volume. L&B Realty Advisors purchased a two- property portfolio from Novaya Real Estate Ventures for close to $73 million or $96/SF. In a sale-leaseback, BlueLinx Corporation sold a four-property portfolio to Arch Street Capital Advisors and Brennan Investment Group, which included the 489,950-square- foot 419 Maple Street in Bellingham. Finally, TIAA-CREF acquired two industrial properties on Grove Street in Franklin for $17.3 million or $104/SF.

$700

$600

$600

$500

$500

$400

$400

$300

$ (000s)

$300

$ (000s)

$200

$200

$100

$100

$0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Price/SF Median Price/SF MEDIAN PRICE/SF

$105

$105

$95

$92

$95

$92

$85

$81

$75

$85

$81

$65

$75

$55

$65

$45

$55

$35

$45

$25

$35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$25

TOP Q1 / INVESTMENT SALES

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

INDUSTRIAL SALES

Q1 2017

Q2 2017

Q3 2017

Q4 2017

TOTAL

SALES VOLUME ($) Former Reebok HQ Canton N vaya Portf lio Littleton-Middleboro

$374,173,554 135 Will Drive Canton

$453,379,723 419 Maple Street Bellingham

$433,947,886 400 John QuincyAdams Road Taunton

$385,172,081

$1,646,673,244

# OF TRANSACTIONS

76

78

82

60

296

4,045,511 Stockbridge Capital Group LLC

Equity Industrial Partners Corp.

Arch Street Capital Advisors LLC/Brennan Investment Group

TOTAL SF

4,779,432

6,394,205

4,243,774

19,462,922

Spear Street Capital L&B Realty Advisors LLP

Buyer

Buyer

Buyer

Buyer

MEDIAN $/SF

$75

$59

$103

$86

$90

$88,000,000 72 7

Price

Price

$22,000,000

Price

$21,000,000

Price

$35,875,000

Total SF

680,000 755

Total SF

300,000

Total SF

415,796

Total SF

489,950

Price/SF

$129 96

Price/SF

$73

Price/SF

$51

Price/SF

$73

Cap Rate

-

Cap Rate

4.0%

Cap Rate

8.50%

Cap Rate

8.75%

7

Q1

M E T R O

B O S T O N

INDUSTRIAL RE CAP

2018

TOTAL INVENTORY (SF)

UNDER CONSTRUCTION (SF)

DIRECT VACANT (SF)

SUBLEASE VACANT (SF)

TOTAL VACANCY RATE

Q1 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

Urban Core

18,651,189

170,000

1,177,746

2,164

6.3%

33,494

33,494

$12.82

Framingham-Natick

3,206,322

-

182,989

-

5.7%

(15,461)

(15,461)

$8.46

Route 128 North

28,807,897

-

1,703,139

128,407

6.4%

(52,436)

(52,436)

$9.47

Route 128 Northwest

3,881,764

-

177,619

37,974

5.6%

(4,327)

(4,327)

$19.61

Route 128 South

39,528,921

400,000

2,879,063

26,540

7.4%

11,877

11,877

$7.12

Route 128 West

4,350,925

-

279,068

-

6.4%

(59,106)

(59,106)

$20.21

ROUTE 128 TOTAL

76,569,507

400,000

5,038,889

192,921

6.8%

(103,992)

(103,992)

$9.08

Route 495 North

20,990,500

383,000

2,392,255

59,580

11.7%

77,969

77,969

$9.67

Route 495 Northeast

13,538,580

225,000

1,618,201

104,614

12.7%

(27,908)

(27,908)

$8.90

Route 495 South

32,238,356

988,000

2,261,314

92,376

7.3%

377,039

377,039

$6.12

Route 495 West

15,178,513

220,106

615,183

64,000

4.5%

170,021

170,021

$8.88

ROUTE 495 TOTAL

81,945,949

1,816,106

6,886,953

320,570

8.8%

597,121

597,121

$8.25

MARKET TOTAL

180,372,967

2,386,106

13,286,577

515,655

7.7%

511,162

511,162

$8.97

METHODOLOGY SOURCE: Co-Star, NAI Hunneman Commercial Company. PREPARED: March 2018.

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.

LIZ BERTHELETTE | Director of Research 617.457.3306 | lberthelette@naihunneman.com

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