Hines’ first industrial project in Greater Boston is the 146,409-square-foot Chelsea Point distribution center at 250 Marginal St. The project received $57.9 million in construction from J.P. Morgan and has yet to announce any leases. Photo courtesy of Hines
After a scramble for far-flung sites suitable for massive distribution centers, developers are adopting a defensive strategy as many of the latest generation of projects sit vacant.
Vacancies have risen for eight quarters in Greater Boston, and the incoming Trump administration’s warnings of new tariffs have added another layer of uncertainty amid warnings of rising prices of consumer goods.
State-of-the-art distribution centers completed in the past year sit unoccupied from the Merrimack Valley to the South Coast, pushing industrial vacancies in eastern Massachusetts above 11 percent.
“You’re seeing much slower lease-up times for the newer buildings,” said Ryan Severino, chief economist for BGO, an institutional investment adviser with $85 billion in assets under management. “Concessions are up, but it’s not as if demand is exploding spectacularly. We went from very cheap debt to expensive debt with inflation. That tamped down the pipeline.”
Vacancies have risen from 5.5 to 11.5 percent in the past three years, according to brokerage Colliers. Projects completed since early 2022 account for fully one-third of the local industrial market’s 21 million square feet of availability. The vacancies are heavily concentrated in new high-bay distribution buildings targeting the retail and e-commerce sectors. Atlanta-based Portman Industrial’s redevelopment of the former Silver City Galleria mall property in Taunton includes a 248,000-square-foot distribution center that broke ground in 2023 after receiving $29 million from BMO Harris Bank. The project is approved for 1.1 million square feet.
But the vacancy spike has prompted a swift correction in development activity. Just 3.4 million square feet of space is now under construction in eastern Massachusetts, according to Colliers research, with speculative projects retreating to prime submarkets such as urban properties near Logan International Airport.
“Construction has come down significantly,” said Jeffrey Myers, Colliers’ research director in Boston. “We’re going to see the vacancy rate stabilize and potentially come down as [2025] goes on.”
Sector Braces for Trade Wars
The short-term prospects for new projects could hinge upon trade policy in the incoming administration, including promised new tariffs on imports. During the campaign, President-elect Donald Trump discussed imposing tariffs of up to 60 percent on Chinese imports.
Top executives at retail chains including Walmart and Lowes are warning of potential price hikes, which could depress consumer spending and reduce demand for warehouse and distribution space.
“Some of this depends upon how broadly the tariffs are implemented and how painful they are,” Severino said. “Where it starts to get more disruptive is when you start slapping tariffs on a broad basis. Whether that affects the industrial market, that depends whether this is a prolonged thing where we get into a trade war.”
Air freight forwarding facilities on Route 1A can fetch rents above $40 per square foot. A former fuel tank depot in Revere is under redevelopment in the first phase of the 635,000-square-foot Trident Logistics Center. Image courtesy of Gilbane Building Co.
In the local market’s remaining speculative activity, institutional investors are targeting last-mile distribution tenants with projects in Chelsea and Revere. For its first industrial project in Greater Boston, Houston-based developer Hines recently completed construction of Chelsea Point, a 146,409-square-foot distribution center at 250 Marginal St. The project received $57.9 million in construction financing from J.P. Morgan in mid-2023.
“The closer you are to Boston, the harder it is to find large-scale industrial sites that haven’t been gobbled up by residential or life science. Given the scarcity of new product, that creates demand for last-mile distribution,” Myers said.
A former fuel storage depot in Revere is being redeveloped as another speculative project: LinkLogistics and Saracen Properties’ 635,000-square-foot Trident Logistics Center at 101 Lee Burbank Highway.
Neither property has announced any tenants to date. But researchers say the sites represented rare opportunities to find distribution space near the urban core, which fetch some of the highest rents in the region.
“Freight forwarding properties along Route 1A can command $40 a square foot and above, and it’s a 5-minute drive to the airport. That’s an unbelievable plot of land to build an infill project on,” said Mark Fallon, director of research and strategy at brokerage Hunneman in Boston.
Steve Adams
Shunned Sectors May Spur Industrial Sales
The current surplus of industrial space shares some uncanny similarities with the lab real estate glut, both of which were triggered by unprecedented conditions brought about by the pandemic.
COVID likewise prompted Amazon and brick-and-mortar retail chains to rapidly expand their warehouse and distribution networks, anticipating a broad shift away from in-person shopping. And developers responded in Greater Boston, breaking ground on more than 70 buildings since early 2022, according to Colliers.
Investment sales volume is likely to increase in 2025, analysts predict, as interest rates decline. There’s nearly $400 billion in capital sitting on the sidelines looking for good real estate investments globally, according to JLL’s global capital outlook.
Institutional investors continue to largely shun the office and life science sectors, Severino said, making industrial assets comparatively more attractive.
“Office is out of favor with a lot of investors. Lab space is out of favor,” he said. “Retail is becoming more favorable, but a lot of the good assets are owned by owners who will never sell them.”
