was able to escape its lease at 145 Plymouth St. in Mansfield when retailer TJX stepped in to take the 140,000 square feet available.

It was supposed to be yesterday’s news, but after a brief – and brutal – dalliance with the upstart technology sector, Greater Boston’s old-line economy seems to be the only thing keeping the commercial real estate industry afloat. That is especially true in the region’s industrial market, one which was supposed to reap major gains from dot-com companies needing warehouse space for regional distribution capabilities.

“That was always the anticipation, but it never really happened,” Spaulding & Slye Colliers principal William D. Bailey told Banker & Tradesman last week. “They never did become a very big player here.”

Despite that, Bailey said the industrial market continues to hold its own in the face of a declining economy and growing consumer nervousness. Along with a limited supply of space, demand has remained solid, he said, while rental rates have shown little indication of slippage. According to first quarter figures released last week by Spaulding & Slye Colliers, the state’s vacancy rate for industrial properties is currently 5.3 percent, while average rental rates are $7.82 per square foot for the 51 million-square-foot market. That compares to an overall vacancy of 4.7 percent and an average rental rate of $7.57 per square foot at the end of 2000.

While some online shopping services, such as and Webvan, did recently ink sizeable industrial leases in the Bay State, other e-commerce outfits never reached that point. Because of that, Bailey said the product type has been “insulated” from the plunge of technology stocks. Most of the overall activity seen in 2001, he said, has come from traditional warehousers.

“People still need to buy clothes, they still need to buy shoes and they still need to buy food, and that’s what warehouses [are used for],” Bailey said. “They hold inventory for that consumption.”

A just-completed deal at 145 Plymouth St. in Mansfield underscores that notion, with Framingham-based TJX Cos. agreeing to take space left behind by The e-commerce company, which moved following a merger with a California company, vacated 140,000 square feet in the new, 186,000-square-foot structure, owned by AMB Property Corp. Cushman & Wakefield broker J.P. Plunkett, whose firm was retained by Smarterkids to dispose of the space, said he considers it a good sign that TJX Cos. stepped in just a few months after it became available.

“All parties involved are smiling,” said Plunkett. “TJX needs the space, and Smarterkids got out of their obligation with minimal exposure. They are very, very happy with it.”

Plunkett and colleague Jon Varholak negotiated a lease termination with AMB, while Insignia/ESG Managing Director Steven E. Clancy struck a direct deal with AMB and TJX, the clothing and homegoods retailer. While Plunkett declined to discuss details, sources said the rental rates were in the range of $5.50 per square foot, near the top of the market.

Pretty Bullish
Given the foot-dragging seen during the first quarter, Plunkett called the TJX deal “great for the overall mood of the market.” Although nowhere near as dramatic as the swing in office space momentum, the first quarter was nonetheless slower than normal, according to Plunkett and other observers. The TJX lease was among a handful of noteworthy industrial leases completed in the early going of 2001, although Bailey did represent Powercell in a massive deal, with the firm subleasing 185,000 square feet at 140 Morgan Drive in Norwood.

Even with that sublease and the consummation of the Mansfield deal, Cushman & Wakefield Director John Lashar said most industrial properties have not had space returning to the market. One reason, he said, is that the limited supply has allowed landlords to be more discriminating, resulting in a stronger tenant base. C&W, for example, represented Lincoln Property Co. in the lease-up of 386,000 square feet in Franklin. The two speculative warehouses at 109 and 111 Constitution Blvd. saw their share of dot-com companies on tours, said Lashar, but the dearth of such modern product squeezed those firms out. The two properties are now fully leased, housing such companies as EMC Corp., McLean Distribution, SMTC Inc. and Transistor Devices.

“Credit was definitely an issue, and we were lukewarm with some of the credit we did see,” said Lashar, who represented Lincoln along with C&W Director Kevin J. Hanna. The ability to fill the properties with such solid companies, and to do so before they were completed, “exceeded the expectations of everybody,” Lashar said.

Perhaps bolstered by rents that ran between $6.25 and $6.75 per square foot, Lincoln Property Co. has subsequently found investor interest for the Franklin buildings, as witnessed by the RREEF Funds’ purchase of 109 Constitution Blvd. The building has just sold for $24.8 million, according to records on file at the Norfolk County Registry of Deeds.

Indeed, the investment sales market for industrial properties is expected to be especially busy in 2001. Many pension funds, which bulked up on office buildings during the past several years, are now looking to industrial and multifamily properties to help balance out their portfolios.

Industrial properties are also attracting interest from users and private opportunity investment funds. Among the recent sales locally has been 1-5 Sassacus Road in Westborough, a 164,000-square-foot warehouse acquired by Invesco Realty Advisors for $9.8 million. The Berman Co. of Boston recently purchased 141 Middlesex Turnpike in Burlington for $3.1 million, while GFI Equities paid $6.3 million for 351 Holt Road in North Andover.

Lashar is upbeat about the remainder of the year, with both sales and leasing of industrial supply expected to pick up as the second quarter moves into full gear. “The market is holding up extremely well,” he said. “I wouldn’t say we’ve been blazing along, but it is steady and I think it will continue to be … I’m pretty bullish right now.”

Old-Line Economy Keeping Commercial Industry Afloat

by Banker & Tradesman time to read: 4 min