An already strong industrial real estate market in Greater Boston got even stronger in 2020 as a result of a highly unlikely and generally unwelcome development: A pandemic. 

Headed into 2020, the industrial market, particularly the warehouse/distribution centers and light-manufacturing/lab subsectors, seemed to be firing on all cylinders, fueled by the rise of e-commerce and the insatiable needs of Boston’s booming life-science sector. 

Then the coronavirus pandemic hit with full force last March, forcing economic lockdowns that served to further boost e-commerce and the demand for warehouses and distribution centers. Meanwhile, massive federal funding for new COVID-19 vaccines bolstered pharmaceutical and biotech firms directly or indirectly tied to vaccine development efforts. 

The net result: The industrial market, which only a decade or so ago was thought of as the runt of the commercial real estate litter, was suddenly the darling of investors, easily outpacing the office, retail and even multifamily residential submarkets in 2020. 

“One of the shining lights coming out of the pandemic is the industrial market,” said Chris Skeffington, executive vice president at CBRE. “I don’t see it changing in 2021.” 

Vacancy Rates Plummet 

“The pandemic has definitely been an accelerant,” said Frank Petz, managing director of capital markets at Colliers International, noting the flood of investment money pouring into industrial properties this past year. “It’s been about as good as it gets.” 

How good? As retail and office properties have suffered due to lockdowns and as people have hunkered down at home for social-distancing reasons, the vacancy rates for industrial space fell to record lows, even as new products came on line, both in terms of new construction and conversions. Indeed, there’s now an estimated 15 million square feet of active demand for industrial space of all kinds, threatening to surpass what’s currently available in the market, according to industry officials. 

According to 3Q data from Newmark Knight Frank and confirmed by third-quarter data from other CRE firms such as Colliers and CBRE, all 215 million square feet of industrial property in Greater Boston, including both class A and class B properties, performed spectacularly well in 2020. 

For warehouse/distribution centers, the vacancy rate in the third quarter stood at 5.7 percent, for R&D/flex space it was 7.1 percent and for general industrial it was 4.9 percent, according to Newmark data. Year-over-year rents increased by about 8 percent. 

All these numbers came despite a flood of new facilities coming online, such as 1.1 million square feet of new warehouse/distribution space in the third quarter alone. Another1 million square feet of space was under construction in the third quarter, according to Newmark data.  

Prices for warehouse/distribution space are now hovering around $8 per square foot, up 33 percent from five years ago. 

E-commerce has captured the most headlines in Greater Boston’s industrial real estate boom, but biotech and other “new economy” tenants have also played a significant part.

Biggest Demand Drivers 

E-commerce giant Amazon has easily been the biggest player in the warehouse/distribution space, said Elizabeth Berthelette, research director at Newmark. Indeed, Amazon, now one of the largest employers in Massachusetts, recently announced plans to open two more facilities in Greater Boston: One in Northborough later this year and one in Taunton in the first half of 2021, according to published reports. 

But other companies are gobbling up warehouse/distribution space, such as US Cabinet Depot (209,000 square feet of space in Norton), Honans (202,000 square feet in Wilmington) and Lowe’s (178,700 square feet, also in Wilmington, at 613 Main St.), according to Berthelette. 

Mike Ciummei, co-leader of JLL’s industrial team in Boston, said the Lowe’s deal is particularly interesting for two reasons: It helped fill one of the largest remaining spaces available in the northern Greater Boston submarket and the lease was by a traditionally bricks-and-mortar retail company that’s shifting to more online business. 

Home Depot is another traditional bricks-and-mortar company demanding ever more warehouse/distribution space, with Equity Industrial Partners building a new 800,000-square-foot facility in Tewksbury for the big-box retailer, Ciummei said. 

Bill Manley, chief investment officer for Calare Properties Inc., said the pandemic, as awful as it’s been for the U.S. economy and population at large, has been a boon for warehouse/distribution property owners, developers and investors. 

“You have this trend that was already underway and might have taken 10 years to take up a certain amount of space and it’s been compressed into six months,” he said of this past year’s surge in demand for warehouses and distribution centers. 

Demand from the New Economy 

As for other industrial properties, manufacturing is making an impressive comeback, as companies increasingly “onshore” operations to be closer to highly skilled workers and suppliers. 

Manley noted that Calare recently finished construction of a new 100,000-square-foot factory in Canton for Prodrive Technologies, a Dutch maker of auto equipment. 

Meanwhile, life science companies are booming, particularly those tied in any way with combating COVID-19. Manley said his firm recently converted an old factory in Maine into a new coronavirus testing facility for Abbott Laboratories.  

Locally, contract manufacturer Vibalogics GmbH recently announced that it’s investing $150 million in a new 118,000-square-foot manufacturing facility as part of ongoing efforts to develop and hopefully distribute COVID-19 vaccines, according to published reports. 

CBRE’s Skeffington said it’s not just drug makers demanding light industrial space. It’s other “new economy tenants” making all sorts of high-end tech products, such as robotics, medical devices and sophisticated electronic equipment.  

“There’s millions of square feet of demand out there,” he said. 

Paul Laudano, chair of the real estate law practice at Choate Hall & Stewart LLP, agrees both light industrial and flex-industrial (which include some office space) are doing particularly well these days. 

The main driver: Life-science companies, whether or not they’re involved in COVID-19 vaccine work.  

“There’s been a tremendous amount of business in this field,” he said. 

And Joe Fabiano, co-leader of JLL’s industrial properties team in Boston, says he sees no let-up in demand and activity for the industrial sector in 2021. 

“This is not a short-term trend,” he said. “It’s just going to get stronger.”