Amazon Is The 'Golden Cow' Driving Greater Boston's Industrial Market To New Heights
Amazon dominated the Greater Boston industrial market last year and is showing no signs of slowing in 2021.
The e-commerce giant opened a 148K SF delivery station in Salem Monday, bringing its warehouse portfolio inside the region’s Interstate 495 belt to nearly two dozen facilities. Amazon also revealed Monday it signed leases for two new suburban facilities totaling 200K SF, set to open in the next two years.
In its quest to provide faster deliveries, Amazon has ramped up leasing velocity in an airtight market, causing rents to rise more than 10% in the past year, experts said. Amazon’s deep pockets have allowed it to lead the e-commerce boom driving industrial demand and pushing competitors farther out of the metro area.
Amazon said it expects to open seven new delivery facilities in the region this year, adding to the 18 it already operates across Boston’s suburbs. The warehouses range in size from 26K SF in Everett to a massive 829K SF facility in Revere.
The company acquired the longtime Brooks Brothers clothing factory in Haverhill last month, where it plans to hire 150 workers, while the new Salem site will employ more than 175 full- and part-time associates, the company said. Amazon has also agreed to occupy a 3.8M SF warehouse complex under development in North Andover.
“We are excited to continue to invest in the state of Massachusetts with new delivery stations that will provide efficient delivery for customers, and create thousands of job opportunities for the talented workforce,” an Amazon spokesperson said in a statement.
Amazon leased more than half of all new industrial construction in the region last year, bringing its warehouse portfolio in Greater Boston above 2M SF, according to Hunneman research. The activity, combined with a 5.6% vacancy rate and a dozen or so assets left has caused industrial asking rents to rise to an average of $10.97 per SF, an 11% increase from $9.86 at the beginning of 2019.
“That would have not happened if it were not for all this Amazon leasing,” Hunneman Director of Research Tucker White said. “You take away Amazon, you just don’t have the construction pipeline.”
Researchers estimate there are approximately 500K SF of warehouses under construction, and the existing market offers only Class-B and C warehouses, White said. Giants like Amazon and Home Depot have turned to new construction as they bring larger minimum requirements in loading docks, parking requirements and ceiling heights.
Amazon’s competition has tried to keep up in the e-commerce arms race, as Home Depot plans a 700K SF warehouse in Tewksbury, the largest lease signed last year. ChristianBook.com also secured a 370K SF lease in Peabody along the Route 128 corridor, surpassing Amazon's largest deals, according to Hunneman.
The trickle-down effect may squeeze local vendors out of their locations, Calare Properties Managing Director Charles Nolfi said.
“Maybe you’ll see people get pushed farther out,” Nolfi said. “Move out toward 495 or past to support their businesses and get the space they need. I think it is a trickle-down effect across the board. From big stuff to the little guy.”
Calare’s portfolio spans 4M SF across New England and the developer has hopped on the industrial flex construction boom with its own flurry of acquisitions and repositioning plays. Nolfi said he’s been amazed to hear about 3% cap rates in industrial deals.
“A lot of people feel they're overpaying, relative to historical, overpaying for some of these current buildings,” Nolfi said. “If it keeps up, the rents are going to increase, and the returns are going to increase.”
Life sciences companies have also entered the industrial fray, with an anticipated need for new biomanufacturing facilities the market lacks. Amazon has also turned toward retail in an attempt to scoop up additional space. It engaged in talks with Simon Property Group last year to turn vacant department store spaces at malls into e-commerce distribution centers.
Amazon, with a market capitalization greater than $1.6 trillion, is empowered by its seemingly unlimited capital, and bidding wars aren’t a factor when Amazon can pay a seller in cash, White said.
“A lot of people come in between 60% to 80% cash, the rest is financed,” White said. “Amazon can just gobble something up. That makes the sale process quicker, which the buyer is a huge fan of. The money’s hard, right away. There’s definitely plenty of ways they out-leverage the competition.”
Nolfi said the upfront cash transactions are only a piece of the pie, as Amazon brings tremendous short- and long-term value to an asset.
“Everyone’s expectation is, if you have the right building, it’s an Amazon building,” Nolfi said. “They’re the golden cow of e-commerce. Amazon has been driving this market. Our expectation is they will continue to.”