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Grubb Ellis has released its first Quarter 2012 Industrial Market Trends Report for the Boston market.
HIGHLIGHTS
• Greater Boston’s overall industrial market began 2012 on an upbeat note, registering 520,000 square feet of positive net absorption in the first quarter. Tenant occupancies in newly constructed buildings carried the market improvement. Properties built since 2002 accounted for 615,000 square feet of positive net absorption, while those older than 10 years saw negative absorption of 95,000 square feet. Thanks to the strong occupancy gains in newer buildings, the market experienced its seventh quarter of positive absorption out of the past eight.
• Vacancy fell to its lowest level in three years, dropping 20 basis points to 13.3 percent.
• Among all three product types, the general industrial sector experienced the largest drop in vacancy compared to other product types, falling 40 basis points to 11.5 percent on 129,000 square feet of absorption. Rents ended the quarter down $0.09 to $7.13 per square foot triple net as certain markets were still affected by high vacancy rates and low rental rates. For example, the 2.7 million-square-foot Lawrence General Industrial market sits 19.5 percent vacant, with asking lease rates averaging $5.76 per square foot triple net.
• Warehouse/distribution properties experienced 256,000 square feet of positive absorption as vacancy fell 10 basis points to 14.1 percent. The southern region accounted for 110,000 square feet of positive quarterly absorption, helped in large part by Harbar taking occupancy of an 84,000-square-foot distribution center in Canton. Average asking rental rates for warehouse/distribution space appear to have stabilized in the $5.50 to $6.00 triple net range with minor fluctuations from quarter to quarter.
• RD/flex properties saw 138,000 square feet of positive absorption during the first quarter. This continues a trend of improvement in the demand for RD/flex space, building on the 252,000 square feet of positive absorption in the previous quarter. The rise in occupancy helped lower vacancy in RD/flex buildings 10 basis points to 14 percent.
• The RD/flex market continues to be affected by the region’s growing technology sector, as technology-related companies Lasermax Roll Systems, PAID Inc. and Sonus Networks occupied a combined 140,000 square feet this past quarter in Billerica, Westborough and Charlestown, respectively.
• Similar to average asking rates for warehouse/distribution space, rates for RD/flex space appear to have stabilized as well, albeit in the $9.50 to $10.00 triple net range.
• Though Boston’s industrial leasing market modestly improved in the first quarter, the region’s investment sales activity was off pace from levels seen in previous quarters. The $42.6 million in investment sales volume during the quarter represents only 13 percent of Boston’s total 2011 volume.
OUTOOK
• Expect upward pressure on rents and diminishing concessions in certain market segments, as availability of quality product dwindles.
• Downward pressure on cap rates will begin to ease over the coming quarters as investment shifts to the stock market and other equities.
• The Associated Industries of Massachusetts (AIM) Manufacturing Index rose to 56.6 in March, up from 55.3 in February. With a reading over the neutral point of 50, growth in production and hiring is likely over the next three to four months, leading to more expansion for the industrial market.
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