Boston's Industrial Market Has The Nation's Most Diverse Tenant Makeup
Greater Boston’s ultracompetitive industrial market is the nation’s most diverse, with a variety of users competing for scarce space, according to a new CBRE report.
Traditional large industrial occupiers are now competing with e-commerce giants, third-party logistics operators and biomanufacturing users from Boston's own bustling life sciences market, the report states. No asset type has more than a 30% share of the industrial market, with retail and distribution uses accounting for a combined 55% of industrial space.
Market watchers this past year consistently rated the Greater Boston industrial market among the strongest in the country, with a vacancy rate under 2%, according to CBRE research. CBRE, since the summer, has been warning of a Greater Boston industrial supply crisis that won’t subside in the next 18 months.
The supply-and-demand dynamic has forced industrial rents to grow exponentially, and today they sit among the higher average rent rates among top industrial markets at $11.58 per SF, according to CBRE’s Boston Industrial Figures Q3 2021 report. Transportation costs represent 45% to 70% of a company’s logistical spend compared to 3% to 6% on fixed-facility costs, encouraging users to continue looking for space closer to urban areas.
Boston’s industrial developers are increasingly tearing down vacant offices in the suburbs to make way for warehouses, bypassing the sometimes arduous permitting process in rural municipalities. Development is underway on a combined 1.7M SF of office-to-industrial conversions in the Boston market, the third-busiest region for such repositionings behind Chicago and Los Angeles, according to a December Newmark report.
Space is scarce close to downtown Boston, and at least one municipality has reformed its zoning to prevent an industrial user from buying and developing a suburban site. The conversion plays in the Greater Boston market are an average 4.2 miles away from the closest major highway, the greatest average distance for industrial conversion projects among the six busiest major metros.
“The success of recently completed office-to-industrial conversions in Boston will attract more capital to these types of projects,” Newmark Director of Research in Boston Elizabeth Berthelette said in a statement.