Fueled by a booming economy and constricted supply, the Bay State’s industrial market enjoyed another solid year in 1999, with vacancy rates holding firm in the single digits and rent growth outperforming the national average. Indeed, the major concern among industrial practitioners going forth is whether there will be adequate supply to meet the region’s needs.

I hate seeing [vacancy rates] go below 5 percent, said Samuel Thomas of Grubb & Ellis in Boston, adding that, We could definitely use some good speculative development.

Although G&E places the year-end vacancy rate for industrial space at 8 percent, Thomas said much of the empty space is obsolete, with inadequate ceiling heights, off-locations and poor vehicular access contributing to their obsolescence. The problem is being exacerbated because much of the improved industrial space is being eaten up by e-commerce firms needing distribution space or telecommunications providers looking to develop so-called switch hotels.

They are willing and able to pay more than a typical warehouser or manufacturer, agreed Christopher P. Tosti of CB Richard Ellis/Whittier Partners. They aren’t a candidate for every industrial building available, but if it is the right location and infrastructure, those building rents will rise and [will likely] be priced too high for the traditional user.

With the tightened supply, industrial rents have been on the increase, although Tosti and others note it has not seen nearly the same level of growth as that found in the office market. G&E estimates that rents overall rose by about 5 percent in 1999, with warehouse/distribution space fetching $6.50 per square foot and light manufacturing now up to $7 to $7.50. The real estate firm predicts a similar hike in 2000, although Torto Wheaton Research maintains that the region could see rents rise as much as 7 percent.

The Internet Effect
One variable that could determine the rent growth is the future of the e-commerce demand. Particularly in light of the distribution problems incurred by Toys ‘R Us and other Internet retailers during the recent holiday season, some have predicted that such companies will look to beef up their networks in the coming year, with Amazon.com and others supposedly scouting for large distribution sites throughout New England.

Although specific examples are lacking, Thomas said early indications are that the Internet will impact the industrial market. Thomas, whose firm is currently marketing a 700,000-square-foot industrial/flex site in Foxboro, said he has been barraged of late by e-commerce firms looking for space, estimating that upwards of 90 percent of his current activity is coming from that area.

There’s a dot com after almost every company that calls, he said. They are clearly going to be the major players in the first half of the 2000s.

Surrounded by solid industrial communities such as Mansfield and Franklin, Foxboro is coming into its own as a warehouse/manufacturing mecca, said Thomas, who is representing Berkshire Development of Springfield in the Foxboro project. The 90-acre park, which is in the planning stages, would be located directly across from the home of the New England Patriots.

We see Foxboro and Route 1 as an excellent location for a variety of companies, Thomas said, noting the close proximity to Interstate 495 and South-eastern Massachusetts. It used to be seen as being the middle of nowhere, but today it’s really the middle of everything.

But Thomas added that all of Southeastern Massachusetts is poised for industrial development, with that area having the largest labor force in the state, an established road network and – perhaps most important – relatively affordable land on which to develop. Whereas closer-in industrial sites along Route 128 have been converted to office or other uses, the South market and I-495 loop have seen the greatest growth among industrial development, Thomas said.

One recent deal that illustrates the activity in the region is the $2.4 million sale of 40 acres at the Franklin Industrial Park to Lincoln Development, with the firm moving forward on 400,000 square feet of speculative warehouse space. Home Depot recently completed a 250,000-square-foot distribution center in Taunton, while A.J. Wright has begun construction of a 300,000-square-foot warehouse in Fall River.

The A.J. Wright deal, brokered by CB/Whittier, exemplifies the lure of labor in making such moves, said Tosti, explaining that was a key reason for the firm to move there. It also shows, he said, the willingness of traditional manufacturers to go farther afield than the technology firms to find affordable space and plentiful labor.

The pure industrial users are typically located out along Interstate 495, Tosti said. You aren’t going to see a software company going out there.

The Metrowest region, covering such communities as Maynard, Marlborough and Framingham, has been especially tight on the industrial end, with most available parcels being scooped up for office, retail and other so-called higher uses. Scott Hughes, a broker with Neelon Properties in Waltham, said that trend is going to put more pressure on the industrial market for the coming year, noting that what space is empty is being spoken for quickly.

In one of the few spec industrial projects to move forward last year, the Maggiore Cos. has all but fully leased its 146,000-square-foot industrial building at 153 Northborough Road in Southborough. Hughes, who is leasing agent for Maggiore, said he has completed 170,000 square feet of leases at 153 and [the existing] 155 Northborough Road since last April. GE Capital Corp. is taking 55,000 square feet in the new property, Maggiore said, with the firm contracting with another company to refurbish computer workstations.

As with Thomas, Hughes said he has seen e-commerce firms stepping up their hunt in the area, maintaining that e-commerce and telecommunications companies are driving the Metrowest suburbs for industrial and office growth.

E-Commerce Firms Eroding Supply of Industrial Space

by Banker & Tradesman time to read: 4 min