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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