Research

BOSTON
1Q15 INDUSTRIAL MARKET

a positive start to 2015

following a strong 2014
finish
The Greater Boston industrial market has posted a single-digit vacancy
rate for the second quarter in a row. After dropping to 9.7%, a 10-year
low, in fourth-quarter 2014, vacancy dropped another 40 basis points to
9.3% in first-quarter 2015. With no developments recently completed or
under construction, this decline in vacancy is a direct result of significant
positive absorption across the market. Following the positive trends of
2013 and 2014, when 2.0 million square feet and 2.9 million square feet,
respectively, were absorbed, first-quarter 2015 posted more than
500,000 square feet of positive absorption. Nevertheless, average asking
rates have increased by only 9.0% in the past two years, to $7.72/SF.
Warehouse/distribution properties are averaging $5.98/SF, a 7.0%
increase, and R&D/flex properties are averaging $10.72/SF, a
13.0% increase.

Positive Absorption for all Boston Submarkets

Absorption in the Central submarket totaled 104,258 square feet. This
moved vacancy down 40 basis points, to end the first quarter at 9.5%.
Many movements during the quarter occurred within warehouse/
distribution buildings: SG Torrice and Community Care Alliance took a
combined 35,000 square feet at 21 Fellows Street in Roxbury; National
Express Transit took occupancy of 20,000 square feet at 100 Meadow
Road in Hyde Park; and Central Rock moved into 15,000 square feet at
127 Smith Place in Cambridge. This positive momentum continued the
trend from last year, when the annual total absorption for all of 2014
exceeded 300,000 square feet.
The North submarket continued to perform well, posting another 125,000
square feet of absorption this quarter. This brings total absorption in this
submarket to nearly 2.0 million square feet since 2012. There were
several large movements this quarter, but unlike the Central submarket,
some of these large movements also created large blocks of vacancy. A
portion of positive absorption occurred as owners took full or partial
occupancy of their recently purchased buildings. AMERCO moved into
31 Olympia Avenue in Woburn, a 148,000-square-foot facility the
company purchased last year. EdgeConnex took occupancy of some of
its recently acquired space at 22 Linnell Circle in Billerica. Also,
BioMedical took 30,000 square feet at its recently purchased 80,000square-foot facility at 165 Lexington Road in Billerica. Other large block
occupancies included Memigraphics, Nasdi Demolition, Zink, DJ
Instruments and Polycom. The largest vacancy to open up this quarter
was at 40 Fordham Road in Wilmington, with113,000 square feet coming
onto the market after GotBooks went out of business. Another large
block opened up at 19 Alpha Road in Chelmsford, which Airvana, Inc.
had recently vacated.

Current Conditions
Vacancy drops 40 basis points quarter-over-quarter
No development underway so far in 2015
Absorption only half that of the previous quarter
Average asking rents up only 1% quarter-over-quarter
We are tracking over 700,000 square feet of deals with a
future move-in date

Market Analysis
Asking Rent and Vacancy
$9

16%

$8

14%

$7

12%

$6

10%

$5

8%

$4

6%
1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15
Average Asking Rent (Price/SF)

Vacancy (%)

Net Absorption
Square Feet, Thousands
1,500
900
300
-300
-900
-1,500
1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

Market Summary
Current
Quarter

Prior
Quarter

Total Inventory

227MSF

227MSF

227MSF

Vacancy Rate

9.3%

9.7%

10.5%

541,784

1,026,112

944,164

$7.72

$7.63

$7.18

Quarterly Net Absorption

Average Asking Rent

Year Ago 12 Month

Period Forecast

Under Construction

94,000

Deliveries

94,000

94,000

Research
BOSTON
1Q15 INDUSTRIAL MARKET

The South submarket posted 163,727 square feet of absorption during

the first quarter, dropping vacancy another 30 basis points to 8.5%. In
fact, the South submarket has been on fire in recent years, with more
than 4.0 million square feet of positive absorption since 2012. The largest
first-quarter movement occurred in Dedham, when Restoration Hardware
took occupancy of 120,000 square feet at 480 Sprague Street. In
Franklin, Boston International Import/Export Inc. took occupancy of
109,000 square feet at 210 Grove Street. Allied Waste Service of
Massachusetts and Party by Design both took full building occupancies
at 11 Campanelli Drive in Assonet and 61 Strafello Drive, respectively. In
Avon, Owens & Minors move-out of the 227,000-square-foot facility at
135 Constitution Boulevard in Franklin represented not only the largest
new vacancy in the South submarket, but also the largest new vacancy in
the Boston industrial market.

At 10.9%, vacancy was highest in the R&D/flex market, which comprised

64.4 million square feet or 28.0% of the overall market. Although the
R&D/flex market has posted positive absorption, it has accounted for only
a small portion of the overall absorption since 2012. As a result of this
positive absorption, vacancy declined by 130 basis points during
this time.
The North submarket posted the highest vacancy this quarter, 10.7%,
down another 70 basis points over the quarter, contributing to the 100
basis point decline over the year. The West submarket posted the
highest annual decline, dropping 180 basis points to end the quarter at
8.0%, the lowest vacancy of all submarkets in the Boston area. The
South submarket continues to perform well, as vacancy declined 110
basis points in the past year, now at 8.5%. Following the trend of all the
Boston submarkets, the Central submarket also declined year-over-year,
down 90 basis points to close the quarter at 9.5%.

The West submarket, like all the other Boston industrial submarkets,
posted positive absorption in first-quarter 2015. By quarter-end, another
146,778 square feet of positive absorption was posted, adding to the
more than 4.0 million square feet of positive absorption posted since
2012. Stoneyard.com took close to 60,000 square feet at 265 Foster
Street in Littleton, while Launch Trampoline filled the remaining 36,000
square feet at 20 Seyon Street in Waltham. A large block of space
became vacant at 1455 Concord Street in Framingham, and two large
blocks of space opened up in Westborough at 129 and 203
Flanders Road.

Asking Rates Continue Their Gradual Climb

Average asking rates have ranged from $7 to $8/SF over the last ten
years, with these rates averaging $7.45/SF during this time frame. The
average asking rate was $7.72/SF, just north of this average, at the close
of the first quarter. Rents are on the rise, but the rate of increase has
remained moderate over the last several quarters, similar to the
moderate increases and decreases over the last ten years. The most
expensive rates were in the R&D/flex properties, which averaged
$10.72/SF. R&D/flex properties in the West submarket demanded the
highest rates, averaging $11.54/SF, while R&D/flex properties in the
Central submarket had the lowest, averaging $8.39/SF. The cheapest
rates could be found among warehouse/ distribution properties, which
averaged $5.98/SF. General Industrial, which includes manufacturing
space, accounted for 64.7 million square feet of inventory and
averaged $7.52/SF.

Vacancy Declines Further in All Submarkets

Overall vacancy dropped for the seventh consecutive quarter, ending the
first quarter at 9.3%. The warehouse/distribution market, which spans
98.2 million square feet or 43% of the Boston industrial market, posted
the lowest vacancy at 8.8%. The North and West were the tightest
warehouse/distribution submarkets, with vacancy for both in the 6.0%
range, compared with double-digit vacancies recorded for both the
Central and South submarkets.

Asking Rents by Type

Industrial Building Sales

Square Feet, Millions

Millions

$14

$850

$100

$12

$680

$80

$10

$510

$60

$8

$340

$40

$6

$170

$20

$4

$0

Wh/Dist

R&D/Flex

$0
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

Volume

General

Source: Real Capital Analytics

Price/SF

Research
BOSTON
1Q15 INDUSTRIAL MARKET

Development Remains Quiet

$102/SF. Industrial sales were strongest in the Central submarket, where

seven significant sales were recorded on 223,312 square feet of
properties. Total volume was $31.7 million and the average price per
square foot was $130. In the West submarket, Front Point Management
invested in a two-property portfolio in Hopkinton. Located at 25 and 45
South Street, the properties combine for a total of 120,000 square feet.
This January sale totaled $11 million or $92/SF. The South submarket
continued to have the lowest sale prices, with $10.4 million or $61/SF
exchanged during the quarter.

Construction activity in the Boston industrial market remained quiet, with

no new developments underway. Since 2012, only three buildings have
been completed, bringing 635,000 square feet to the market. There are
currently two buildings under renovation in the North submarket. In
Bedford, an 80,000-square-foot R&D/flex building at 16 Crosby Drive and
a 40,000-square-foot general industrial building at 4 Crosby Drive are
both undergoing six-month renovation projects. More than 100 projects
are currently in the planning or proposal stage. When combined, they
represent more than 10.0 million square feet. As to which of these
projects will move forward, only time will tell.

Looking forward

Year-over-year
industrial sales on
the rise

Given the current increase in demand and company expansions and the
dearth of new development, vacancy is expected to decline further. With
vacancy at 9.3%, there remains more than 20 million square feet of
vacant space, although desired locations and amenities are certain to
limit tenants options. As this occurs, the Boston market will see some
movement on the development front, especially for built-to-suits that do
not align with vacancies offered in the market. As mentioned earlier,
asking rental rates have experienced only modest fluctuations over the
last ten years. As with vacancy, drilling down by location and amenities
may lead to submarkets having higher or lower rates than the market as
a whole. Sublease space, once a viable and lower-cost alternative, has
shrunk. Only a few years ago, the Boston industrial market posted close
to 2.0 million square feet of vacant sublease space. At the close of the
first quarter of 2015, just over 700,000 square feet of sublease remains
vacant. Expect asking rents to continue to climb, albeit modestly.

Industrial sales finished the first quarter with volume exceeding $130.0
million, as more than 1.3 million square feet of properties changed
hands. Average price per square foot rose for the fourth quarter to $61,
which was still below the U.S. average in the low $70s/SF. The largest
building sold this quarter was 108 Cherry Hill Drive in Beverly. Axcelis
Technologies sold this 407,000-square-foot R&D/flex property to ASA
Properties for $49 million or $118/SF. First-quarter sales in the North
submarket totaled more than $77.2 million in volume and averaged

Lease/User Transactions
Tenant

Building

Submarket

Type

Boston Gas Company

326 Ballardvale Street, Wilmington

North

Expansion

Square Feet

WNA

50 Independence Drive, Ayer

West

Renewal

80,000

McCusker-Gill

60 Research Park, Hingham

South

Direct

60,000

Nasi Demolition

39 Olympia Avenue, Woburn

North

Direct

35,000

Hollingsworth & Vose

3 Nemco Way, Ayer

West

Direct

32,000

105,000

Select Sales Transactions

Building

Submarket

Sale Price

108 Cherry Hill Drive, Danvers

North

$49,167,000

$118

417,000

133 Hale Street, Haverhill

North

$13,996,000

$99

142,000

45 South Street, Hopkinton

South

$11,000,000

$92

120,000

255 & 261 Ballardvale St, Wilmington

North

$7,250,000

$85

85,000

60 Research Road, Hingham

South

$5,000,000

$83

60,000

Price/SF

Square Feet

Research
BOSTON
1Q15 INDUSTRIAL MARKET
www.ngkf.com

Submarket Statistics
Total
Inventory
(SF)

Under
Construction
(SF)

Total
Vacancy
Rate

Qtr
Absorption
(SF)

YTD
Absorption
(SF)

WH/Dist
Asking Rent
(Price/SF)

R&D/Flex
Total
Asking Rent Asking Rent
(Price/SF)
(Price/SF)

Central

26,479,839

9.5%

104,258

104,258

$7.97

$8.39

$8.41

North

82,463,054

10.7%

127,021

127,021

$5.96

$10.75

$8.70

South

73,918,091

8.5%

163,727

163,727

$5.24

$9.47

$5.96

West

44,476,136

8.0%

146,778

146,778

$6.06

$11.54

$8.22

227,337,120

9.3%

541,784

541,784

$5.98

$10.72

$7.72

Boston

Submarket Statistics by Subtype

Total
Inventory
(SF)

Under
Construction
(SF)

Total
Vacancy
Rate

Warehouse/Distribution

98,210,559

8.8%

322,406

322,406

$5.98

R&D/Flex

64,394,175

10.9%

32,477

32,477

$10.72

General Industrial

64,732,386

8.9%

186,901

186,901

$7.52

227,337,120

9.3%

541,784

541,784

$7.72

Boston

Qtr
Absorption
(SF)

YTD
Absorption
(SF)

Total
Asking Rent
(Price/SF)

Research
BOSTON
1Q15 INDUSTRIAL MARKET

Economic Conditions

Employment By Industry

The Massachusetts unemployment rate ticked downward to 5.1%, as

nearly 98,000 additional workers have found employment since the
beginning of 2014. The Boston-Cambridge-Quincy,MA-NH NECTA rate
increased to 4.9% after dropping late in 2014 to the lowest level since
2007. This decline occurred as nearly 75,000 more workers were posted
year-over-year. They both remain well below the U.S. average.

Not Seasonally Adjusted, Annual 2014

Information

2.9%
3.7% 3.9%

20.8%

Construction
Other Services

6.7%

Financial Activities
7.4%
Manufacturing

As we look back to 2014, the information sector had the strongest job
growth of any sector for both Massachusetts and Metro Boston.
Massachusetts gained 5,800 information jobs in a one-year period, while
4,700 jobs were added to the Metro Boston area. The education and
health sectors, which are the largest sectors with a combined 756,100
jobs statewide, added 19,300 and 20,700 jobs, respectively. The only
sector to lose jobs during the year was manufacturing. Statewide, there
are 200 less jobs in manufacturing, despite 700 more manufacturing jobs
added to the Metro Boston area.

17.1%

Leisure/Hospitality

9.6%

Government
12.0%

Trade/Transportation/Utilities

15.9%
Business & Professional
Health/Education
Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Unemployment Rate

Payroll Employment

Seasonally Adjusted

Total Nonfarm, Not Seasonally Adjusted, 12-Month % Change

13%
3%
10%
2%
8%

1%

5%

-1%

3%
0%
Jan-10

-2%
Jan-11

Jan-12

Jan-13

United States

Jan-14

-3%
Jan-10

Jan-15

Jan-11

Jan-12

Jan-13

United States

Massachusetts

Jan-14

Jan-15

Boston

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics New
England

Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Consumer Price Index (CPI)

Employment Growth by Industry

All Items, 12-Month % Change, Not Seasonally Adjusted, 1982-84=100

12-Month % Change, Seasonally Adjusted

4%

Total
Construction
Other Services
Health/Education
Business & Professional
Trade/Transportation/Utilities
Information
Government
Financial Activities
Leisure/Hospitality
Manufacturing

3%
2%
1%
0%
-1%
Jan-10

Jan-11

Jan-12

United States

Jan-13

Jan-14

Jan-15

Boston

-1.0%

Source: U.S. Bureau of Labor Statistics, Boston-Brockton-Nashua, MA-NH-ME-CT

0.0%

1.0%

2.0%

3.0%

4.0%

Source: U.S. Bureau of Labor Statistics, Boston-Cambridge-Quincy, MA-NH

Research

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David Tackeff
Research Coordinator
617 772 7283
dtackeff@ngkf.com

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has
been revised. With this expansion and refinement in our data, there may be adjustments in historical
statistics including availability, asking rents, absorption and effective rents.
Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research
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