List Distribution Services’ 85,000-square-foot lease at the Boston Business Park in Boston’s Hyde Park district was one of the state’s largest industrial transactions of the first quarter.
For Greater Boston’s industrial real estate market, 2006 has not exactly had a banner beginning, but signs of a recovery are evident as the second quarter commences.
“The cobwebs are definitely going away for industrial,” Cushman & Wakefield of Massachusetts Senior Director J.P. Plunkett said last week. Specializing in the southern suburban Boston region, Plunkett and Senior Director Catherine Minnerly just negotiated a 35,000-square-foot agreement at 111 Forbes Blvd. in Mansfield on behalf of Innovative Spinal Technologies. The duo also brokered one of the state’s largest first-quarter industrial transactions when List Distribution Services agreed to take 85,000 square feet at the Boston Business Park in Boston’s Hyde Park district.
“We’re active,” Phillip K. Burgess of Malden-based Burgess Properties said of his industrial book of business. Demand has tailed off in certain areas, he said, most notably the industrial swath near Logan International Airport. Conversely, communities such as Malden, Medford, Everett and Somerville have been slowed by a dearth of available space, but Burgess said he is encouraged by the outlook for the industrial sector going forward.
Besides a 36,000-square-foot deal brokered for Biogen Idec in Somerville, Burgess Properties helped Lady Grace Stores relocate from several buildings in Malden to a 25,000-square-foot operation in Woburn. While the deal solved lingering facilities issues for Lady Grace, Burgess said the initial goal to keep the firm in the Malden area did not materialize due to the tight submarket.
“We looked for a solid year, and nothing suitable came available,” said Burgess, explaining the client required efficient warehouse space that it ultimately found at 5 Commonwealth Ave. in Woburn. Paul R. Delaney of Burgess Properties was broker for Lady Grace, while the landlord was represented by James Boudrot and Ted Shannon of NAI Hunneman Commercial Co.
Although demand is not a problem for Malden and surrounding environs, the Logan industrial base has been in the doldrums since the end of 2005, said Burgess. New product developed by Cargo Ventures with its 160,000-square-foot 480 McClellan Highway facility in East Boston has increased the inventory, but Burgess said a lack of large requirements has been the main contributor to the torpid leasing pace near Logan. “There’s just a huge lull in that area right now,” he said.
Burgess stressed that “it’s a beautiful building,” but 480 McClellan Highway has landed just one tenant to date, recently relocating Globe Ground from another Cargo Ventures property nearby into approximately 50,000 square feet. The remaining space has apparently not been spoken for, and Burgess said there are substantial vacancies at other buildings throughout East Boston and Chelsea. A shifting of freight to airports in Manchester, N.H., and Rhode Island may be part of the reason, said Burgess, adding that other freight firms have determined that outer Massachusetts communities such as Peabody and Danvers are close enough to Logan to service their needs.
‘A Little Longer’
Even with industrial users exploring alternatives, Burgess expressed optimism for Logan, explaining that the submarket has always displayed a cyclical element. “It is taking a little longer than I’d like to see, but I have no reason to think that area won’t recover,” he said. “It always has before.”
The Interstate 495 South industrial submarket also had a difficult start to 2006, as evidenced by 213,000 square feet of negative absorption recorded by Spaulding & Slye and negative 140,000 square feet estimated by Cushman & Wakefield of Massachusetts in their first-quarter reports. The vagaries in numbers are tied to different samplings of buildings and definitions of industrial space, with Cushman & Wakefield including so-called flex product whereas Spaulding & Slye segregates that space into a separate report. By any measure, however, I-495 South was among the worst performers during the first quarter.
Despite that, Cushman & Wakefield of Massachusetts Research Director Rick Cleveland said he believes the Bay State is poised for a solid industrial market this year, with his firm showing vacancy rates declining while absorption levels are positive and rents have stabilized. “The fundamentals are encouraging,” said Cleveland. “There are certain pockets that are better than others, but the overall trend [indicates] improvement.”
Tracking 254 million square feet in 3,200 Massachusetts industrial buildings, the 140,000 square feet of positive absorption registered by Cushman & Wakefield in the first quarter was hardly earth-shattering, but Cleveland reported that the vacancy rate has fallen from 16.8 percent a year ago to 15.7 percent today. Although manufacturing has been on the wane in Massachusetts in recent years, the 80 million square feet of manufacturing space covered in the Cushman & Wakefield report has the lowest vacancy rate at 12.9 percent, compared to 16.7 percent for the 112 million-square-foot warehouse market and a 17.6 percent vacancy for high-tech industrial product, estimated at 62 million square feet.
In Spaulding & Slye’s report, I-495 South’s difficulties were offset by a solid quarter in the larger South suburban market, which posted 285,000 square feet of positive absorption. It was just one of three industrial submarkets sporting positive absorption for the quarter, joining the Route 128/Massachusetts Turnpike’s 19,000 square feet and 83,000 square feet of positive absorption posted in the Northwest sector. The North submarket was in the red by 45,000 square feet in the Spaulding & Slye survey, while the I-495/Massachustts Turnpike submarket was down by 88,000 square feet. I-495 North saw a dip of 22,000 square feet, despite an 82,000-square-foot lease at 25 Shelley Road in Haverhill.
Brad Spencer and Tyler Ewing of Grubb & Ellis Co. were brokers for the C4N Logistics lease in Haverhill, a deal that was among the largest in the quarter. Spencer said last week that the industrial market does appear to be getting healthier after a difficult three years, even though he added that vacancy rates remain higher than desired.
Spaulding & Slye estimates a vacancy rate of 19.7 percent overall for the 62 million square feet of industrial space covered by the firm, with a low of 6.3 percent in the Route 128/Massachusetts Turnpike submarket to an alarming high of 34.7 percent in the Northwest. The South submarket, by far the largest at 21 million square feet, has a vacancy rate of 18.4 percent, according to Spaulding & Slye.
Looking forward, Plunkett said one positive trend has been from firms who typically would not consider industrial product increasingly being drawn to that arena by competitive rental rates and the opportunities available. While characterizing the deal as an industrial lease, Innovative Spinal Technologies will incorporate laboratory functions into 111 Forbes Blvd., said Plunkett, as well as a measure of office space.
Besides the needed production space, IST was looking for a property offering “curb appeal” and the ability to accommodate the laboratory functions “It wasn’t easy finding all that,” said Plunkett, but 111 Forbes Blvd. ultimately met the Rhode Island firm’s requirements, with the 58,000-square-foot building sporting a gateway location at the Cabot Business Park, as well as a landscaped, well-maintained property to enhance tenant image. James Nicoletti and Steven Clancy of CBRE/New England were brokers in the IST lease for the landlord, AMB Property Corp.
Plunkett was also upbeat about the signing of List Distribution for the Boston Business Park. The firm’s foray into the submarket will create jobs and could lead to an expansion by that firm, he said, as well as helping promote the attributes of the 72-acre park, for which Cushman & Wakefield serves as exclusive leasing agent. “The List deal definitely helps put us on the map,” Plunkett said. “It has added more credibility to us as a bona fide industrial address.” And while the first quarter may not have produced extensive activity, Plunkett said a number of showings at available buildings and new prospects bodes well for the near term. “Those two [elements] should lead to some great second-quarter activity,” he said.
