The first phase of AmeriCann’s 1-million-square-foot Massachusetts Medical Cannabis Center in Freetown will contain 130,000 square feet for cultivation and processing and 30,000 square feet of R&D space.
Life science manufacturing expansion, e-commerce companies’ growing distribution space requirements and urban manufacturers that are displaced by development in Boston are driving industrial vacancies down and rents up in Greater Boston.
Industrial vacancies fell to 6.8 percent at the end of 2016, according to Boston-based Encompass Real Estate Strategies. It’s the lowest level in at least 15 years, reflecting redevelopment of industrial parcels into other uses and demand from e-commerce companies for distribution space near population centers.
In Boston, industrial users are increasingly being displaced by multifamily developments, especially near transit stops. The latest large-scale proposal calls for 521 housing units and a 150-seat restaurant at 36-40 and 50-70 Sprague St. at an industrial park in Readville. Boston developer Abbey Group’s acquisition of the 6-acre Boston Flower Exchange property in the South End could replace the wholesale hub with tech offices, labs and housing. And Catamount Management Corp. plans 177 housing units at 480 Rutherford Ave. as part of its continuing redevelopment of the 20-acre former Hood Dairy site.
“Ultimately, the companies that are going to stay behind have to be in Boston proper for access to their customers: trash transfer stations or school bus yards or uses like that,” said Michael Dalton, an executive director at Cushman & Wakefield. “Some of these are starting to push into Chelsea and Everett.”
Even in Everett, industrial users face rising land prices stemming from the proximity to the $2 billion Wynn Boston Harbor casino. Unimproved industrial land without permits in Everett has sold for as high as $2.2 million per acre in recent weeks, Dalton said, as investors bet on demand continuing to spill over.
More big industrial sites close to downtown are on developers’ radar, including South Boston’s Widett Circle and the Dorchester Avenue corridor between Broadway and Andrew Square.
“Route 128 towns are becoming part of the urban fabric when it comes to industrial properties, because it’s radiating out,” said Steve Clancy, a partner at CBRE/New England. “Companies in Chelsea want to go to Peabody, and companies from South Boston end up in Braintree. That’s pushing up pricing in those towns.”
Catamount Management Corp. Plans 177 multifamily housing units at 480 Rutherford Ave. in Charlestown as part of its continuing redevelopment of the 20-acre former Hood Dairy site.
Two Trends Collide In Suburbs
Industrial properties are falling by the wayside in inner-ring suburbs such as Watertown, as developers test the market for more apartments, hotels and office space. A former Verizon warehouse at 490 Arsenal St. was in heavy demand from industrial users when it hit the market in 2014, said Clancy, the listing broker. They were outbid by Boylston Properties, which is converting them it into tech offices.
“Every time that happens, some company gets displaced,” Clancy said. “At the same time, the absorption of industrial space has increased. So the two trends are colliding.”
Greater Boston’s 226-million-square-foot industrial market has averaged 825,000 square feet of positive absorption over the last five quarters, according to researchers Jonathan Sullivan and Dan Carucci at Newmark Grubb Knight Frank in Boston. Average asking rents rose nearly 2 percent from the previous year to $7.86 per square foot.
Leading the demand for space are e-commerce companies seeking “last-mile” distribution space to support same- and next-day delivery, according to industrial brokers. That starts with Amazon, which opened a 1.2-million-square-foot warehouse on the Fall River/Freetown line in September and leased nearly 100,000 square feet at 201 Beacham St. in Everett last year to support its food delivery business.
“Your normal consumer-driven users, your plumbing and electric suppliers, are being pushed out by fulfillment type uses and logistics type uses,” said Bill Manley, CEO of Hudson-based Calare Properties. “It’s a real sea change and doesn’t seem to be stopping anytime soon.”
The Bay State’s thriving life science industry is contributing to the industrial development pipeline, as drug manufacturers ramp up in-state production. Moderna Therapeutics and Siemens Healthineers are expanding existing facilities in Norwood and Walpole, respectively. Pfizer Inc. broke ground in June on a $200 million, 175,000-square-foot biologics manufacturing facility at its Andover campus.
And industrial developers are keeping a close eye on the potential for legalized recreational marijuana to drive occupancy and development of cultivation and processing facilities.
Campanelli Construction has been selected to build the first 160,000-square-foot phase of the Massachusetts Medical Cannabis Center in Freetown, which has permits to expand to 1 million square feet.
In Colorado, growers leased 1 million square feet of industrial space in the first year of legalization and accounted for one-third of all industrial absorption in the Denver area.
