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Boston Area Industrial Market Report for Q4 2016

The Boston Industrial market ended the fourth quarter 2016 with a vacancy rate of 6.1%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,375,803 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 1,300,711 square feet. Rental rates ended the fourth quarter at $6.77, an increase over the previous quarter. A total of nine buildings delivered to the market in the quarter totaling 498,001 square feet, with 2,426,113 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall Boston Industrial market was positive 1,375,803 square feet in the fourth quarter 2016. That compares to positive 2,184,992 square feet in the third quarter 2016, positive 1,816,213 square feet in the second quarter 2016, and positive 145,512 square feet in the first quarter 2016. The Flex building market recorded net absorption of positive 461,303 square feet in the fourth quarter 2016, compared to positive 101,248 square feet in the third quarter 2016, positive 792,349 in the second quarter 2016, and negative (143,984) in the first quarter 2016.

The Warehouse building market recorded net absorption of positive 914,500 square feet in the fourth quarter 2016 compared to positive 2,083,744 square feet in the third quarter 2016, positive 1,023,864 in the second quarter 2016, and positive 289,496 in the first quarter 2016.

Vacancy

Boston’s retail vacancy rate decreased in the fourth quarter 2016, ending the quarter at 3.1%. Over the past four quarters, the market has seen an overall decrease in the vacancy rate, with the rate going from 3.7% in the first quarter 2016, to 3.4% at the end of the second quarter 2016, 3.2% at the end of the third quarter 2016, to 3.1% in the current quarter. The amount of vacant sublease space in the Boston market has trended down over the past four quarters. At the end of the first quarter 2016, there were 797,996 square feet of vacant sublease space. Currently, there is 495,120 square feet vacant in the market.

Rental Rates

The average quoted asking rental rate for available Industrial space was $6.77 per square foot per year at the end of the fourth quarter 2016 in the Boston market area. This represented a 0.6% increase in quoted rental rates from the end of the third quarter 2016, when rents were reported at $6.73 per square foot. The average quoted rate within the Flex sector was $10.07 per square foot at the end of the fourth quarter 2016, while Warehouse rates stood at $5.83. At the end of the third quarter 2016, Flex rates were $10.19 per square foot, and Warehouse rates were $5.75.

Deliveries and Construction

During the fourth quarter 2016, nine buildings totaling 498,001 square feet were completed in the Boston market area. This compares to seven buildings totaling 1,879,842 square feet that were completed in the third quarter 2016, 14 buildings totaling 248,348 square feet completed in the second quarter 2016, and 227,055 square feet in 14 buildings completed in the first quarter 2016. There were 2,426,113 square feet of Industrial space under construction at the end of the fourth quarter 2016.

Some of the notable 2016 deliveries include: 1180 Innovation Way - Amazon, a 1,000,000-square-foot facility that delivered in third quarter 2016 and is now 100% occupied, and 500 Hancock Dr, a 640,000-square-foot building that delivered in third quarter 2016 and is now 100% occupied. The largest projects underway at the end of fourth quarter 2016 were 50 Pettengill Rd, a 1,000,000-square-foot building with 100% of its space pre-leased, and 20 Commerce Way, a 200,000-square-foot facility that is 100% pre-leased.

Sales Activity

Tallying industrial building sales of 15,000 square feet or larger, Boston industrial sales figures fell during the fourth quarter 2016 in terms of dollar volume compared to the second quarter of 2016. In the fourth quarter, 49 industrial transactions closed with a total volume of $233,240,965. The 49 buildings totaled 3,912,178 square feet and the average price per square foot equated to $59.62 per square foot. That compares to 71 transactions totaling $346,233,200 in the second quarter. The total square footage was 5,723,450 for an average price per square foot of $60.49.

Total year-to-date industrial building sales activity in 2016 is up compared to the previous year. In the first nine months of 2016, the market saw 184 industrial sales transactions with a total volume of $944,132,906. The price per square foot has averaged $56.57 this year. In the first nine months of 2015, the market posted 175 transactions with a total volume of $798,592,297. The price per square foot averaged $56.81.

Cap rates have been lower in 2016, averaging 7.73%, compared to the first nine months of last year when they averaged 7.95%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale 675 Canon Street in Boston. This 338,432-square-foot industrial building sold for $27,500,000, or $81.26 per square foot. The property sold on 12/19/2016.

Information provided by CoStar.com

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