IRR-Boston Mid-Year Viewpoint 2015 Local Market Report - Industrial
The overall industrial market continues to post positive gains in most submarkets and quarterly absorption has been positive for most quarters over the past two years. Vacancy rates continue to track slowly downward and asking rents are modestly increasing. The Boston metro warehouse/distribution market contains an overall inventory of over 130 million square feet which has been relatively stable over the past 4 years as only just over 700,000 square feet of new inventory have been constructed since 2010.
The Class A warehouse market’s improving fundamentals continue to drive demand by investors to the point where the market is out of balance with limited supply and a significant amount of capital is chasing very few offerings. Over the past 6 months several institutional sales and at least one pending sale have brought sale prices between $85 and $100/SF and cap rates in the 5% to 5.5% range. Build-to suit developments are on the rise and some market participants are forecasting the start of a new development cycle for industrial space.
The first speculative industrial development is planned in Norton where two buildings totaling 300,000 square feet are proposed.
Industrial vacancy is hard to pinpoint given that it is tracked differently by most companies with some including older manufacturing space and flex space along with the modern warehouse space. All data sources report slightly declining vacancy, and the market for Class A warehouse space has a vacancy rate just over 10%. The manufacturing sector continues to improve and by most accounts vacancy has declined into the mid to low teens. The vacancy rate for flex space remains in the mid to high teens.
According to forecasts prepared by REIS, the warehouse/distribution market vacancy rate will decrease into the single digits as soon as year-end 2015. The weighted average effective rental rate is forecast to increase between 2.3% and 3.0% annually over the next 4 years. REIS projects that the average effective rental rate in the Boston metro area for distribution/warehouse space will be $7.25 per square foot in 2019.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.