BRENDAN CARROLL
Feeling ‘optimistic’

The gloom looms large in Greater Boston’s industrial market, but doom is not in the offing for that commercial real estate sector, according to Richards Barry Joyce & Partners research director Brendan Carroll.

“There are definitely reasons to be optimistic,” Carroll insisted last week, even though RBJ&P estimates there was nearly 2 million square feet of negative absorption in the region during the first quarter of 2004, including a 1.2 million-square-foot dip in the warehouse/distribution absorption level. Spaulding & Slye Colliers recorded similar trends, estimating that industrial properties saw absorption in the red by 1.3 million square feet during the opening salvo.

“It was a tough start,” acknowledged Carroll, who recorded another 706,000 square feet of negative absorption in the manufacturing arena. The overall vacancy rate for the quarter jumped from 14.7 percent at year end 2003 to 17.1 percent three months into 2004, the RBJ&P report revealed.

If one looks deeper into the numbers, however, the deterioration is not as foreboding as it might seem, said Carroll, explaining that a major chunk of the added supply comes from sizeable properties that have been working their way through bankruptcy for the past few years, including distribution centers operated by defunct retailers Ames and Hit or Miss. “It really reflects dynamics that happened a few years ago,” said Carroll.

Another piece of old news also was factored into the latest figures, Carroll said, that being a 600,000-square-foot availability in Billerica caused by the departure of Kmart’s distribution operations. The market will have to absorb that space, but Carroll said observers should not be fooled into thinking industrial activity is on the wane. The recovery of employment should help manufacturing properties, Carroll said, while warehouse/distribution facilities can take solace in the steady improvement of the general economy.

“The direction for warehouse/distribution is going to be pretty favorable in the future,” Carroll said. “The driver is consumer demand, and if people are buying more products, that’s going to increase demand for warehouse space.”

RBJ&P principal John C. Wilson said the Interstate 495 West market has held up well, but did express concern about the North and Northwest markets, partly due to the Billerica availability and another one that just occurred in Wilmington that is bringing an additional 400,000 square feet to the market. “We are a little concerned about the vacancies in the North, and in the South,” Wilson said. “We think it is going to put some pressure on pricing there.” The I-495 West area has remained strong, Wilson said, and seems to be retaining its rental rates.

Covering 59.5 million square feet, Spaulding & Slye put the overall vacancy rate for industrial space at 16.3 percent at the end of the first quarter, while availability was pegged at 22.5 percent. That compares to 14.3 percent and 19.2 percent figures, respectively, at the end of 2003.

Negative Results

An anemic net absorption of 5,576 square feet in the I-495/Massachusetts Turnpike area was the only plus outcome in the eight submarkets tracked by Spaulding & Slye, with all others recording negative results. The worst occurred in the Northwest submarket, where the Kmart departure at 90 Salem St. spiked negative absorption to 629,000 square feet. One of the smallest submarkets, the Northwest saw its availability rate soar to 54.5 percent in the first quarter, Spaulding & Slye estimated.

Elsewhere, Spaulding & Slye posted negative absorption of 212,000 square feet in the South submarket and 370,000 square feet in the North. Besides the Northwest, the highest vacancy rate was registered in the I-495/South submarket, which had a 21.7 percent vacancy and a 28.7 percent availability rate for its 10.1 million-square-foot inventory.

Efforts to contact Spaulding & Slye principal William D. Bailey were unsuccessful, but in a recent forecast, the veteran industrial specialist predicted difficult times ahead for older, outmoded properties given the large amount of available space circulating in the market. Average rents will dip slightly in early 2004, he said, although Bailey did offer a measure of hope in such potential warehouse/distribution requirements as BJ’s Wholesale Club and Dunkin Donuts.

Currently, National Development is pursuing a 410,000-square-foot, built-to-suit project for Dunkin Donuts in Bellingham. That initiative is working its way through the community approval process. Speculative industrial construction is on the decline, according to Bailey, with only a 130,000-square-foot facility in Northborough scheduled for delivery over the near term.

One deal that bolstered the West Bridgewater industrial scene was a 93,000-square-foot lease to Sullivan Tire at 393 Manley Road, with that firm taking over space recently left by Harte Hanks. Cushman & Wakefield brokers Cathy Minnerly and J.P. Plunkett represented the landlord in that deal, which actually signed in early April. Sullivan was represented by Mark Donahue of Donahue & Assoc.

Plunkett said he is encouraged by the number of companies looking for space under 75,000 square feet, but said larger industrial requirements are not as prevalent as he had hoped they would be at the beginning of 2004. “I wish there was a bit more traction,” he said. Still, Plunkett said deals are beginning to occur, including a 17,500-square-foot renewal by Chiquita Banana at the Cabot Business Park in Mansfield. Plunkett and Minnerly were brokers for the tenant, while Steve Clancy and Jim Nicoletti of CB Richard Ellis acted on behalf of the landlord, AMB Corp.

On the investment front, capital continued to pursue industrial buildings despite the dour fundamentals, with investors convinced that the product type offers more stability and upside than seen with R&D or office assets. Paradigm Properties, for example, has launched a new fund that will seek to invest $50 million to $70 million for high net worth individuals. Industrial buildings are among the target assets, with a criteria for 12 percent to 14 percent returns.

Among the significant industrial acquisitions in the first quarter was New Boston Fund’s $9.3 million purchase of 275 Bodwell St. in the Avon Industrial Park in Avon. The 210,000-square-foot distribution building is 100 percent occupied.

Elsewhere, Intercontinental Real Estate Corp. of Brighton acquired two buildings at the Devens Commerce Center in central Massachusetts, The space totaled more than 730,000 square feet. In North Dartmouth, Volex Inc. sold a 55,000-square-foot warehouse at 358 Faunce Corner Road for $1.8 million. That deal was brokered by Joe Flynn and Dennis Croke of NAI Hunneman Commercial Co. in Boston.

Joe Clements may be reached at jclements@thewarrengroup.com.