The building at 275 John Hancock Road in Taunton, located in the Myles Standish Industrial Park, is a 239,000-square-foot facility with 92,000 square feet available for rent.
The amount of empty space in Greater Boston’s industrial market shrank in the first quarter, but the region’s overall vacancy rate is still in the double digits.
“There’s a lot less manufacturing going on in Massachusetts,” said Joseph P. Plunkett, senior director at Cushman & Wakefield. “That explains some of the vacancies, but there are some obsolete buildings that muddy the data too.”
During the first quarter of 2007, the vacancy rate at industrial properties fell across eastern Massachusetts to 13.5 percent, down from 15.7 percent one year ago, according to Cushman & Wakefield’s New England Market Research report. The global real estate firm monitors nearly 256 million square feet of industrial space. Those properties include warehouse, manufacturing and so-called “flex” space that can be adapted to meet tenant demand.
The most dramatic drop was in Boston, where industrial vacancies slipped to 9.8 percent in the first quarter, down from 15.1 percent for the same period a year ago. North of the city, along Route 128 and Interstate 495, vacancies fell to 14.3 percent from 16.1 percent in 2006. The area to the west of Boston, as far as Worcester, saw vacancies fall slightly by 1 percentage point to 17.4 percent, down from 18.4 percent one year ago. South of the city, vacancies fell to 10.2 percent from 12.9 percent.
Plunkett said it is unlikely that the manufacturing sector’s vacancy rates will drop much lower. He predicted vacancies for the remainder of 2007 will be stable. At the height of the dot-com boom in 1999 and 2000, vacancies were in the 10-12 percent range, he noted.
“We are coming out of a very sluggish quarter,” said Plunkett. “Tours in January, February and March were down, proposal requests were down earlier this year, but there has been an uptick recently. The fourth quarter of 2006 was robust and it was eerie how everything closed that quarter and nothing bled into ’07.”
Commercial brokers say the spring market has brought a renewed demand for space. But they also said that some of the facilities, especially in older cities like Fall River and New Bedford, no longer meet the demand of tenants who require 30-foot ceilings, sprinkler systems and a bigger turning radius for trucks.
‘People Feel Secure’
The industrial numbers come on the heels of a very strong first-quarter office market for landlords. Availability of office space in Boston declined in the Financial District, Charlestown, North Station, the Seaport District and the Longwood Medical Area during the first quarter of 2007 compared to the same period a year ago.
In Cambridge, choices for prospective tenants slipped by nearly 5 percentage points while Interstate 495 saw a 2 percent decline. South Station and Midtown were the only Boston submarkets where availability increased. Space selection in the Back Bay remained flat.
As available space dropped, per-square-foot office rents across the region rose to an average of $41 in downtown Boston, to $34 in Cambridge and to $21 in the suburbs, according to Jones Lang LaSalle. On the industrial side, the average per-square-foot rent is $7, with properties in Boston getting about $9 and properties west and south of Boston fetching $6, the Cushman & Wakefield data said.
“The industrial market is not as white-hot as the office market,” Plunkett said. “If you look at the office market, everyone agrees that a single-digit vacancy rate is tight with the pendulum on the landlord’s side, but in the industrial market, the low teens ought to be considered tight.”
Still, Plunkett said the industrial market is very “active” in Boston and I-495 South. While he acknowledged that the first three months of the year were slow, leasing has picked up in the last month. In the last few weeks, two big industrial leases were signed: Boston Buffalo Express took 10,500 square feet at 88 Black Falcon Ave. in South Boston and CSN Stores, a Boston-based furniture store, leased 85,000 square feet at the Boston Business Park.
The Interstate 495 South market has absorbed nearly 109,000 square feet. That total includes a lease renewal and expansion for Innovative Spinal Technologies, a manufacturer and marketer of products in minimally invasive spine surgery, of 58,380 square feet at 111 Forbes Blvd. in Mansfield’s Cabot Office Park. Condyne LLC and Green Street Investors recently leased a 26,132-square-foot warehouse/showroom to Columbia Warehouse Supply at 250 Revolutionary Way in Taunton.
“Things are definitely picking up in the second quarter,” Plunkett said. “The economy is stable and people feel secure. This is our busiest time of the year.”
Catherine Minnerly, a senior director Cushman & Wakefield, credited job growth in the office sector with fueling the need for warehouse space. “The healthy office market has trickled into the industrial market,” she said.
Richard Schuhwerk, an assistant vice president at Jones Lang LaSalle, insisted that the industrial market is “very solid” and noted that not too long ago, vacancies were twice what they are today.
Schuhwerk cited a litany of companies involved in recent deals including Principal Financial Group, a global financial company that leased 148,000 square feet at Cabot Business Park. Last fall, Victaulic Co., a producer of mechanical pipe joining systems, opened a new distribution branch with 35,000 square feet of space at 145 Plymouth St. in Mansfield.
“I’m not sure what’s driving it,” Schuhwerk said. “There are a lot of big-box vacancies so the deals are good, the prices are right and landlords need to fill this space. Eighteen months ago the vacancy rates were 23 percent now to mid-teens. We are still tracking some big tenant users in the 7,500- to 200,000-square-foot range.”
Greater Boston’s industrial data was released as the Federal Reserve kept its target for the federal funds rate at 5.25 percent. In its latest analysis economy, the Fed noted that economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters, the Fed noted.
Inflation remains elevated, although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures, the Fed said.
