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Boston Area Industrial Market Report for Q4 2018

The Boston Industrial market ended the fourth quarter 2018 with a vacancy rate of 5.3%. The vacancy rate was up over the previous quarter, with net absorption totaling positive 459,615 square feet in the fourth quarter. Vacant sublease space increased in the quarter, ending the quarter at 1,017,423 square feet. Rental rates ended the fourth quarter at $7.87, an increase over the previous quarter. A total of nine buildings delivered to the market in the quarter totaling 893,547 square feet, with 2,691,964 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall Boston Industrial market was positive 459,615 square feet in the fourth quarter 2018. That compares to positive 1,472,719 square feet in the third quarter 2018, positive 462,206 square feet in the second quarter 2018, and negative 1,074,822 square feet in the first quarter 2018. Tenants moving out of large blocks of space in 2018 include: AMSC moving out of 355,000 square feet at 64 Jackson Road, Quad/Graphics moving out of 350,000 square feet at 1133 County Street, and Barnett moving out of 210,000 square feet at 26 Milbury Street. Tenants moving into large blocks of space in 2018 include: FW Webb moving into 785,000 square feet at 10 Webb Drive, FedEx Ground moving into 361,952 square feet at 100 Pine Hill Drive, and Quiet Logistics moving into 355,000 square feet at 64 Jackson Road. The Flex building market recorded net absorption of negative 45,039 square feet in the fourth quarter 2018, compared to positive 200,463 square feet in the third quarter 2018, negative 661,116 in the second quarter 2018, and negative 810,469 in the first quarter 2018. The Warehouse building market recorded net absorption of positive 504,654 square feet in the fourth quarter 2018 compared to positive 1,272,256 square feet in the third quarter 2018, positive 1,123,322 in the second quarter 2018, and negative 264,353 in the first quarter 2018.

Vacancy

 

The Industrial vacancy rate in the Boston market area increased to 5.3% at the end of the fourth quarter 2018. The vacancy rate was 5.2% at the end of the third quarter 2018, and 5.5% at the end of the second and first quarter 2018. Flex projects reported a vacancy rate of 7.7% at the end of the fourth and third quarter 2018, 7.8% at the end of the second quarter 2018, and 7.3% at the end of the first quarter 2018. Warehouse projects reported a vacancy rate of 4.5% at the end of the fourth and third quarter 2018, 4.7% at the end of the second quarter 2018, and 5.0% at the end of the first quarter 2018.

Rental Rates

The average quoted asking rental rate for available Industrial space was $7.87 per square foot per year at the end of the fourth quarter 2018 in the Boston market area. This represented a 0.8% increase in quoted rental rates from the end of the third quarter 2018, when rents were reported at $7.81 per square foot. The average quoted rate within the Flex sector was $10.93 per square foot at the end of the fourth quarter 2018, while Warehouse rates stood at $6.87. At the end of the third quarter 2018, Flex rates were $11.10 per square foot, and Warehouse rates were $6.79.

Deliveries and Construction

During the fourth quarter 2018, nine buildings totaling 893,547 square feet were completed in the Boston market area. This compares to four buildings totaling 305,775 square feet that were completed in the third quarter 2018, four buildings totaling 709,552 square feet completed in the second quarter 2018, and 1,388,980 square feet in 15 buildings completed in the first quarter 2018. There were 2,691,964 square feet of Industrial space under construction at the end of the fourth quarter 2018. Some of the notable 2018 deliveries include: 10 Webb Drive, a 785,000-square-foot facility that delivered in first quarter 2018 and is fully occupied by FW Webb, and 100 Pine Hill Drive, a 361,952-square-foot building that delivered in second quarter 2018 and is fully occupied by FedEx. The largest projects underway at the end of fourth quarter 2018 were 333 Coney Street, a 300,000-square-foot facility that will be occupied by Siemens, and 100 Financial Park, a 300,000-square-foot facility that is available for lease.

Sales Activity

Tallying industrial building sales of 15,000 square feet or larger, Boston industrial sales figures fell during the third quarter 2018 in terms of dollar volume compared to the second quarter of 2018. In the third quarter, 67 industrial transactions closed with a total volume of $450,861,180. The 67 buildings totaled 4,866,373 square feet and the average price per square foot equated to $92.65 per square foot. That compares to 57 transactions totaling $513,297,500 in the second quarter. The total square footage was 5,779,997 for an average price per square foot of $88.81. Total year-to-date industrial building sales activity in 2018 is up compared to the previous year. In the first nine months of 2018, the market saw 176 industrial sales transactions with a total volume of $1,361,183,118. The price per square foot has averaged $87.47 this year. In the first nine months of 2017, the market posted 161 transactions with a total volume of $882,097,657. The price per square foot averaged $62.63. Cap rates have been lower in 2018, averaging 7.29%, compared to the first nine months of last year when they averaged 7.68%. One of the largest transactions that has occurred within the last four quarters in the Boston market is the sale of FedEx Distribution Center in Boylston. This 361,952-square-foot industrial building sold for $93,870,000, or $259.34 per square foot. The property sold on 11/5/2018, at a 6.15% cap rate.

Information provided by CoStar.com