Royal Institutional Laundry’s commitment to 114,000 square feet at 30 Innerbelt Road in Somerville was one of the major industrial lease deals of 2004.

The industrial leasing market pulled a slow one on Massachusetts landlords in late 2004, with conditions deteriorating sharply in the final quarter, according to figures compiled by area real estate service firms.

“It was not a stellar year for the industrial market,” acceded principal Mark A. Stevens of GVA Thompson Doyle Hennessey & Stevens, who said the vacancy rate for such product jumped from 14.5 percent in the first quarter to 18 percent by year’s end. Emily Schwartz, director of research at Lincoln Property Co., reported 1.4 million square feet of negative absorption in 2004, nearly half of which came in the final three months.

“There’s a lot of space out there,” said Schwartz, whose firm tracks 137 million square feet of industrial supply in the state, of which 20.7 million square feet is presently available. As a result, Schwartz said, rents were flat for the year, and are likely to remain so in the coming months.

“The feeling overall is that rents are at a plateau,” she said. “They aren’t going to fall much lower, but they aren’t going to recover until we absorb some of that space.”

Schwartz and Lincoln industrial specialist Austin W. Smith did cite an uptick of industrial tenants pursuing deals in the area to start the new year. “I’m much more optimistic about 2005,” said Smith, who called the previous campaign “mixed and unpredictable.”

Early season trends include a propensity of mid-sized prospects, said Smith, with many requirements in the 30,000- to 60,000-square-foot range. Meanwhile, after being dominated by office activity for much of the past decade, Route 128 seems to be attracting industrial users, he said, although the Interstate 495 West submarket did enjoy a solid 2004.

“The industrial market seems to be doing well in Marlborough,” agreed Wayne Spiegel of NAI Hunneman Commercial Co., as evidenced by the recent purchase of 445 Simarano Drive by Ram Management Co. of Maine. As reported last week in Banker & Tradesman, Ram paid $6.6 million for the Marlborough industrial building, and has hired Hughes Properties to offer the 175,000-square-foot property for lease, subdividable to 16,000 square feet.

Major industrial deals in the West suburban corridor last year included McKesson Medical’s 130,000-square-foot lease at 55 Lyman St. in Northborough and an 80,000-square-foot lease across town at 30 Forbes Road by Aspen Aerogels. As a result, that market saw its vacancy rate drop slightly in 2004 to 12.4 percent on the strength of 142,000 square feet of net absorption, Lincoln indicated.

There was trouble to be found elsewhere, however. Lincoln estimated that Greater Boston’s biggest industrial sector, the 56.9 million-square-foot South region, had nearly 1 million square feet of negative absorption for the year. The submarket did enjoy several large transactions, including Medline’s deal for 204,000 square feet in Mansfield, a 127,000-square-foot lease by Sullivan Tire in West Bridgewater and Instron Corp.’s 110,000-square-foot lease at 825 University Ave. in Norwood. Despite such successes, a glut of supply becoming available overshadowed the region’s positives.

Schwartz noted, for example, that 220,000 square feet hit the market in Norton at 176 South Washington St., while 508,000 square feet of warehouse space became available at 800 Acushnet Ave. in New Bedford and 469,000 square feet is being peddled at 140 Laurel St. in East Bridgewater.

‘Sideways Movement’

Negative absorption in the North suburban market was nearly half that found in the South region, but the area was still dragged down by some large availabilities such as the 629,000 square feet of vacant space available in the former Kmart warehouse at 90 Salem Road in Billerica. American Science and Engineering did provide a boost with its 56,000 square foot lease at 33 Manning Road in Billerica, while Sullivan Bros. renewed for 47,000 square feet at 117 Marginal St. in Lowell. That velocity allowed the North to keep its vacancy rate out of double digits at 9.8 percent, compared to a 12.4 percent vacancy for the suburban West industrial market and 15.3 percent in the South submarket.

Smith participated in two major industrial leases in 2004, representing the landlords in the Instron lease and in Royal Institutional Laundry’s commitment to 114,000 square feet at 30 Innerbelt Road in Somerville. Michael Frisoli of Richards Barry Joyce & Partners was the broker for Instron, while David Corkery of CBRE/Whittier Partners was the agent for Royal.

In its year-end report, Cushman & Wakefield of Massachusetts estimated that the industrial negative absorption exceeded 2.05 million square feet in 2004, with an overall vacancy rate of 14.6 percent. Tracking a larger sample than other local firms, covering 239 million square feet in suburban Boston, Cushman & Wakefield places the current vacancy rate at 14.6 percent and the asking rent on a triple-net basis at $7.08 per square foot.

One element that has remained relatively in check has been new industrial construction. Cushman & Wakefield indicates that there is just 530,000 square feet under way at present. Even so, Schwartz said existing supply is often being passed over in favor of build-to-suit options, as well as certain speculative projects such as the Gutierrez Co.’s 55 Lyman St. project and GFI Partners’ venture in Littleton that has yielded nearly 500,000 square feet of virgin industrial product.

Similar to the office market, a flight-to-quality movement has been prevalent in the industrial sector, said Schwartz, with a “two-tiered market” making it difficult for older supply to compete against recent additions. A desire for high ceilings is driving many tenants past older product, concurred Stevens, who also said he is enthused to see a surge of potential tenants entering the marketplace to begin 2005. As with Smith, Stevens said he is noticing many mid-size prospects, but added that the improving economy seems to be increasing the number of six-figure users.

“It’s encouraging,” said Stevens, although he is forecasting a period of “sideways movement” before the rental and vacancy rates begin to see improvement. In its year-end overview, Spaulding & Slye Colliers put the 2004 industrial negative absorption at 1.74 million square feet for the 60.1 million square feet it researches, with 773,000 square feet of negative absorption in the fourth quarter. The overall vacancy rate is now at 17.9 percent, according to Spaulding & Slye, ranging from a low mark of 5.8 percent in the Route 128/Massachusetts Turnpike submarket up to 36 percent in the Northwest.