The Greater Boston economy spent much of 2002 making significant adjustments following the boom of 1999 to 2000. The high-tech, durable goods and tourism sectors – traditional drivers of the Hub’s economy – experienced significant downturns in 2001 and saw little recovery in 2002. Corporate scandals and weak earnings reports, combined with the continuing impact of the Sept. 11, 2001 tragedy, drove the stock market down to five-year lows, resulting in an unemployment rate of 5.7 percent in Massachusetts as of March 2003.
Given the economic landscape, it shouldn’t come as a surprise that commercial real estate in southern Massachusetts struggled to maintain an even keel in 2002, even though it kept afloat better than the neighboring North and West markets. The focus has remained on the office market with vacancy rates rising steadily throughout 2002 in the Interstate 495 South market, ending the first quarter of 2003 with an overall vacancy rate of 19.5 percent. Overall vacancy rates in the Route 128 South market saw little change throughout 2002 with the first quarter 2003 ending at 22 percent.
Though still slow, the southern markets have fared better on the industrial front than the office. For example, several significant industrial leases were signed throughout 2002 and the first few months of 2003. Home Depot leased 236,222 square feet of warehouse/distribution space at 625 University Ave. in Norwood, and Reebok leased 118,125 square feet of warehouse/distribution space at 5 Industrial Drive in Mattapoisett. In the first two months of 2003, Intercept leased 44,000 square feet of flex space at 575 University Ave. in Norwood; Shaw Industries took 55,000 square feet of warehouse/distribution space at 275 John Hancock Road in Taunton; and Chep Inc. leased 95,900 square feet of warehouse/distribution space at 675 Canton St. in Norwood. Two leases were also completed at 140 Morgan Drive in Norwood, with Home Market Foods leasing 113,000 square feet of warehouse space and Maintenance Warehouse/America leasing 72,000 square feet of warehouse space.
There were also some significant sales transactions of industrial buildings during 2002. Equity Industrial Partners purchased 140 Laurel St. in East Bridgewater, a 520,782-square-foot warehouse/distribution building, from Shaw’s Supermarket for $14.5 million. SunLife purchased 61 Robert Treat Paine Drive from the Midas Corp. for $3.25 million at the end of 2002.
Major new building completions included 575 John Hancock Road in Taunton, an 181,980-square-foot warehouse/distribution build-to-suit for New England Pottery; and a 350,000-square-foot warehouse/distribution build-to-suit for Perkins Paper at 630 John Hancock Road in Taunton.
Despite these sizable leases and sales, the overall industrial vacancy rate for the southern Massachusetts market increased from 12.6 percent at the end of the first quarter 2002 to 14.7 percent at the end of the first quarter 2003. This increase was due largely in part to the significant demise of the high-technology sector. Although not as adversely affected as other markets such as Route 128 West and Interstate 495 West, overall vacancy rates in the high-technology sector of the Southern market rose 7.4 percentage points, from 17.7 percent at the end of the first quarter of 2002 to 25.1 percent at the close of the first quarter 2003.
However, the South suburban industrial market has begun to experience an increase in activity during the first quarter of 2003. The demand for space has come primarily from large warehouse/distribution space requirements. Because the South suburban market is heavy in warehouse/distribution product, a tenant that requires this type of space will be most interested in the area south of Boston. The demand for warehouse/distribution space is apparent when looking back over the first quarter.
Because of the increased activity, the South suburban industrial market was one of only two submarkets in all of Boston to experience positive absorption in the first quarter of 2003 – with 484,270 square feet of positive absorption. The positive absorption can be attributed to the several leases previously mentioned, particularly the large blocks of space taken in Norwood and Taunton.
More good news for the Boston industrial markets came when, in a recent report released by Cushman & Wakefield, it was listed as one of the Americas’ top performing industrial markets behind Mexico City and Tijuana. In fact, Boston was ranked the fourth most expensive industrial location.
The overall rental rates for the South suburban market was $7.28 for first quarter 2003, while the Boston overall industrial rental rate was $8.20. This is a 5.7 percent increase from the previous year. These rates are buoyed by flex space rates which fell within a $10 to $12 range. The reality was warehouse/distribution spaces experienced rents ranging from $5.50 to $6.75.
Though challenged, the southern Massachusetts market is expected to pick up the pace throughout 2003, especially in the industrial sector. The activity in the first quarter of this year indicates that this trend has already begun. As the economy continues to improve, rising demand will make Boston’s industrial markets one of the first commercial real estate segments to recover.
