Although the past two years have been sluggish in the industrial market, recent activity at sites such as Devens Industrial Park (pictured above) and a 135-acre park in Freetown are leading experts to predict positive changes.

After running hot and cold over the previous two years, it appears the industrial real estate market is aiming at something in between for 2002.

Few industrial deals of note were completed locally in the first quarter, and demand continues to suffer from an economic stupor brought on by the recession and the terrorist attacks of Sept. 11. But while clouds are still lingering, and could cling to the horizon for some time, observers also insist that the industrial market will begin to enjoy improved conditions in the near term.

“We are going to see weakness through 2002, although not at the same rate of deterioration as 2001,” Torto Wheaton Senior Economist Laura Stone said last week. “Availability [of space] is going to continue to rise, but it should start to taper off by the third quarter.”

According to figures from Spaulding & Slye Colliers, Greater Boston posted negative absorption of 180,000 square feet in the first quarter, with five of the seven submarkets it tracks finishing in the red. That brought the overall vacancy rate for the 56.8 million-square-foot industrial market to 11.5 percent, more than double the 5.3 percent posted three months into 2001.

Daniel R. DeMarco, whose Campanelli Cos. is one of the state’s leading developers of industrial product, agreed that the region has seen a reversal of fortune during the past year, adding that the most difficult stretch occurred during the end of 2001 and through this January. Since that time, however, DeMarco said his company has been encouraged by the number of firms discussing future space needs for distribution and manufacturing operations.

“It’s not what our volume was last year, but I’d say we’re mildly surprised at the current activity,” said DeMarco, Campanelli’s managing director of real estate. “There are more inquiries coming along every day.”

DeMarco said the Massachusetts industrial market has stayed in balance despite the economic slide, with less overbuilding than seen in the office arena helping to keep rental rates from experiencing any significant deterioration. Much of the vacancy is contained in outmoded facilities, he added, maintaining that should translate into a continued need for new buildings. Modern distribution centers require such features as ceilings above 22 feet, for example, as well as ample loading docks and other amenities not found in older properties. There has even been an erosion of industrial supply, with Greg Klemmer of Klemmer & Assoc. estimating that 5.5 million square feet of such space has been converted to other uses in Massachusetts since 1997, replaced by a blend of retail, office, technology and other applications.

Geographically, warehousing and manufacturing should continue to spread out, as companies increasingly target southeastern Massachusetts and the central part of the state. Campanelli itself just placed a 200-acre parcel in Douglas under agreement, on which it can develop upwards of 1.5 million square feet. While perhaps off the beaten path from traditional industrial meccas, the Douglas site can service distribution routes from upstate New York to New Hampshire, said DeMarco, who predicts that large users will be particularly attracted to the parcel.

Cost and availability of land are considered prime reasons firms are more willing to pioneer into new markets. In addition, the plentiful labor pool found in and around Fall River and New Bedford has caught the interest of many companies, as have communities seeking to expand their tax base with a business-friendly attitude. Freetown reportedly has been among the more accommodating governments, perhaps aiding in several blockbuster deals completed there last year. Campanelli landed Weyerhauser for a new lumber distribution center at its 135-acre park in Freetown, for example, while Stop & Shop has committed to a 1.5 million-square-foot warehousing complex at a new park just down the street. Taunton remains a desired address when available land can be identified, as witnessed by Condyne’s recent agreement to build a 750,000-square-foot distribution center for Jordan’s Furniture. The building will be constructed on a 170-acre site crafted through rezoning, a plan supported by neighborhood groups and the city of Taunton.

Veteran broker Richard S. Borden of Insignia/ESG has seen a surge of business coming into southeastern Massachusetts during the past five years, and said he believes that migration will continue well into the future. Although it has been a slow beginning to 2002, Borden said he is anticipating business will pick up in the coming months. “It certainly can’t stay quiet forever,” said Borden, explaining that the biggest factor in the slowdown has been the inability of businesses to commit to expansion projects.

One of the few areas of Massachusetts that has seen positive absorption is in the North region, with Spaulding & Slye estimating that 96,000 square feet of space was absorbed in the first quarter. Klemmer said the North is seeing encouraging velocity in property tours, although he agreed the industrial sector has seen better days.

“It certainly isn’t red hot,” he said. “There’s a lot of people moving sideways [more than] expanding.”

At 5.1 percent, the North market has one of the best industrial vacancy rates, while the availability rate is at 7.1 percent. The availability rate counts all space being marketed for lease, and not simply what is vacant. By comparison, the availability rate in the Route 495/Massachusetts Turnpike submarket is 19 percent, while the mark stands at 17.5 percent in the South market.

The North market has been helped by a lack of industrial supply, said Klemmer, estimating that that region has four properties featuring 40,000 to 75,000 square feet, compared to 15 in the Southeast market and 18 in the South. For industrial users needing more than 75,000 square feet, there are just three options in the North region, Klemmer said.

Meanwhile, the national market has seen a significant bump in industrial supply, said Stone, with the 53 markets Torto Wheaton tracks producing 220 million square feet in 2001. Combined with negative absorption of 134 million square feet, the national availability rate jumped from 6.3 percent at the end of 2000 to 9.6 percent at year-end 2001. Boston added 4.6 million square feet of new industrial space in 2001, Stone said, while the state had 1.1 million square feet of negative absorption in that time.

“There was rapid deterioration of the industrial market,” Stone acknowledged. On the plus side, she said construction has fallen back in recent months, with 33 million square feet completed in the first quarter and just 92 million square feet currently underway. “There’s definitely less under construction than there was at this time last year,” Stone said.