Warehouses have long been viewed in real estate as the sleepy sector of CRE, but, thanks to stripped supply and an unwavering demand from a variety of manufacturing and e-commerce tenants, the industrial sector is finally finding its role in Boston’s real estate boom.

“I’ve been doing this for almost 30 years, and for about 20 of those years, if you had asked me what industrial rent was in Boston, I would have told you between $3.50/SF to $4.25/SF,” Calare Properties CEO Bill Manley said. “The same rent is now between $6 and $8 and, in some special cases inside South Boston or East Boston, you’re seeing rents between $17 and $27. Those are folks who are so location-sensitive that they pay to be there.”

The same location-centric tenants are moving away from typical warehouse requirements. High-bay distribution centers with 30-foot clearances are not necessary for e-tailers used to moving products quickly. Instead, these tenants take buildings with shorter clearances closer to the city to operate last-mile distribution. They also want it quickly and are willing to sacrifice plenty for the sake of convenience.

“The oldest buildings today, which are for a lot of people functionally obsolete, are now the most relevant properties,” The Seyon Group principal Andrew Iglowski said. “Tenants have wish lists of five to 50 things, and in this market, you might get two.”

Iglowski’s firm is buying a vacant building built in the 1970s that requires a lot of capital to return it to functionality. Amazon at one time approached the company about renting the building quickly for overflow holiday distribution on a short-term basis.

“Amazon said they would move in tomorrow even though it was almost entirely obsolete,” Iglowski said. “What’s driving Amazon’s needs and demand is how close to the population they can be.”

The premium is not limited to the urban core, either.

Industrial building costs had not moved for 20 years on the North Shore, and a high-tech space would historically cost between $90/SF and $110/SF to construct to cater to tenant needs. Colliers International Executive Vice President Greg Klemmer has seen five recent North Shore deals where companies are willing to spend $150/SF to over $200/SF for the same spaces.

“If you looked at rents five years ago, it was the same as it was 10 to 20 years ago,” he said. “A lot of people are looking at it, and this is the new normal.”

Boston’s industrial market is playing a game of forced musical chairs and finding new homes inside Route 128. The activity is generated by more people moving to or staying in the city, putting a premium on land to make way for taller development.

“Land prices in Boston are so high that, if you had available land to build, in most instances you aren’t building single-story warehouses because there’s higher and better use,” Iglowski said.

Widett Circle, between the South End and South Boston, is home to several food distribution warehouses but was previously pitched as the site for an Olympic stadium in Boston’s failed 2024 Summer Olympics bid. The property and other industrial sites in the city’s Seaport neighborhood are now alternative pitches in the city’s bid for Amazon HQ2.

"Industrial tenants are looking for 15-year deals and landlords want month-to-month, and that really speaks to land values," Iglowski said.

The repurposing of industrial sites is already underway in the suburbs. Normandy Real Estate Partners is developing the 1.2M SF mixed-use Founders Park in Needham, where Trip Advisor has its new headquarters and NBCUniversal is poised to build a $125M regional headquarters. A significant portion of the complex was formerly the 28-acre Needham Industrial Park. The University Station mixed-use development in Westwood was previously the 17-building University Avenue industrial park.

Some point out the disappearance of these warehouses does not mean a lack of demand. There is even more due to increased last-mile operations.

“That demand from older types of tenants hasn’t gone anywhere, but you now have all this new demand for less supply,” Iglowski said.

E-commerce has resoundingly changed demand for industrial spaces. Online retail sales accounted for 8.9% of total retail sales in Q2 with an estimated $111.5B in sales, up more than 16% from last year.

“Everyone points to Amazon, but it’s not just them. It’s 24-hour mattress distribution, medical records and anybody who is advertising a quick turnaround on delivery of goods and services,” Manley said. “They’re all trying to be near the population base.”

Calare is banking on the demand with its latest project, the acquisition of 15-21 University Road in Canton. The 103K SF warehouse near University Station was originally a shampoo factory, and the firm is at work redeveloping the property where it can be used for a variety of roles, including last-mile distribution, manufacturing and R&D.

Closer to the city, the lack of supply is causing developers to look at how to handle rising industrial needs. High-density, high-cost markets like Tokyo have multilevel industrial spaces that Manley sees as a viable option. Spec buildings are also beginning to make sense as rents have jumped from their decades-long plateau. Most companies now have an Amazon mentality regarding warehouse and flex space, and it is changing opinions on building without a tenant lined up.

“You can now afford to do spec and make money on it and feel comfortable with this is a need not going away in the next few years,” Calare Managing Director Charles Nolfi said.

While spec has begun to make sense, others note it still is not in the same windfall league as multifamily or office developments. Rents may support new construction, but industrial remains a low-yield play for land and any growth will be measured.

“If you have six acres of dirt and want the most for your money, you might not permit an industrial building,” Manley said. “The stars need to align a bit. You’re going to see more but not overbuilding.”