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Industrial vacancies rose to 5.4 percent in Greater Boston as warehouse users cut back on their space requirements amid an uncertain economic outlook.
The industrial market has recorded over 1 million square feet of negative absorption since January, brokerage Hunneman reported this week.
“Slowdowns in consumer spending, increased barriers to obtain financing for new development projects, and general recession fears are a cause for concern as industrial space users develop their business plan and imagine their growth profiles in the years to come,” Hunneman’s REALinsights report stated.
Industrial properties became one of the strongest commercial sectors during and immediately after the onset of the pandemic, as e-commerce companies and retailers gobbled up warehouse space and developers rushed to complete speculative projects.
As of the second quarter, nine spec projects totaling more than 200,000 square feet remain 100 percent available in eastern and central Massachusetts.
The report notes that despite current economic uncertainties, long-term trends favor steady demand for warehouse and distribution space. Supply chain disruption during the pandemic prompted some U.S. companies to reemphasize domestic manufacturing, and Massachusetts is emerging as a clean energy and robotics growth cluster, Hunneman researchers Mark Fallon and Michael Klemm wrote in the report. And the growth of artificial intelligence applications will likely generate more demand for data centers.
Data presented by a Colliers executive at a NAIOP Massachusetts forum this month also confirmed a slowdown in leasing and tenant expansion plans. Colliers is tracking a 7.2 percent vacancy rate across a 188 million-square-foot inventory of properties in Greater Boston.
Average asking rents range from $12.35 per square foot in the south suburban market to $25.57 in the Boston urban submarket.
Nearly 8 million square feet of industrial properties are under construction, including five large speculative projects totaling 2.5 million square feet that have delivered since January.
But tenants’ space requirements have shrunk, prompting developers to offer subdividable buildings, Colliers Senior Vice President Kevin Brawley said at the forum.
Currently, 70 percent of the tenant demand is for buildings 200,000 square feet or less.
“The largest tenants have put things on pause,” Brawley said. “The large retailers that were looking for industrial space have been looking at the new deliveries and were close to deals, and a lot is on hold for internal analysis. We’ll see if some of those come back to life.”
