There could be more manufacturing jobs in the Bay State if a pending 150,000-square-foot lease is completed by Cytyc Corp. at 445 Simarano Drive in Marlborough.
Framed by high vacancy rates and stagnant rents, the picture remains blurry for Massachusetts industrial real estate, but midyear figures and a spate of emerging leasing requirements seem to indicate a market recovery could finally be coming into focus.
“It has been more encouraging in the last six months than it has been for the past few years,” CBRE/New England principal Steven Clancy said last week. “Foot traffic is definitely increasing.” Burgess Properties principal Phil Burgess reported similar trends for industrial product north of Boston where his Malden-based real estate firm concentrates its activity.
“It has been a lot busier than I anticipated at the start of the year,” said Burgess. Although there are pockets of paucity, such as an unanticipated slowdown in leasing of cargo space near Logan International Airport, Burgess said he is satisfied with the pace to date. “It’s not dead by any means,” he said. The bulk of the velocity has come from small and mid-sized companies, he relayed, but a few larger industrial tenants are beginning to circulate as well, including one prospect he declined to identify that is seeking upward of 100,000 square feet on the North Shore.
Midyear figures from local real estate firms had some inconsistencies due to different definitions of industrial space and divergent methods for tracking when deals are completed, but the results generally indicated a sluggish opening quarter followed by impressive gains in the second round. The most muted outlook came from Lincoln Property Co., which showed 102,000 square feet of positive absorption in the second quarter. Set against negative absorption in the first quarter of 354,000 square feet, Lincoln recorded a total midyear figure of 252,000 square feet of negative absorption.
Spaulding & Slye showed 18,000 square feet of positive absorption in the first quarter and a gain of 371,000 square feet in the second quarter, while CBRE/New England estimated midyear industrial absorption was up by 807,000 square feet. Top deals contributing to the robust performance included a 335,000-square-foot lease at 192 Mansfield St. in Norton by Advanced Auto Parts, a 153,000-square-foot commitment at 65 Sunnyslope Ave. in Tewksbury by Eastern Bag & Paper Co. and List Distribution & Logistic Services taking 85,000 square feet at the Boston Business Park in the Hub’s Hyde Park district.
According to Clancy, the rebound has been anything but uniform, citing a path of “two steps forward, one step back” as a continued series of mergers and acquisitions leads to industrial buildings being heaped upon the market just when the improved economy seems to be righting the supply/demand equation. Perhaps the most encouraging trend of late, he said, has been a series of deals from high-tech, electronics and health care-related operations that are eating up manufacturing space throughout suburban Boston.
South of the city, for example, Tyco Healthcare signed a lease for 315,000 square feet in the Cabot Business Park in Mansfield, a 15-year deal that included substantial manufacturing space. Brokered by Trammell Crow Co. the pact by Tyco’s medical devices division encompasses 5, 15 and 100 Hampshire St.
The presence of firms such as Tyco in Mansfield and Johnson & Johnson in Raynham is enticing ancillary medical users to migrate into the south suburban industrial market, said Clancy. Lincoln Property Co. Director of Research Emily Schwartz reported similar trends in her midyear industrial survey, adding that Bristol Myers Squibb announced in the second quarter it would build a 750,000-square-foot manufacturing facility in central Massachusetts.
‘Strong’ Demand
Although it is a far cry from the start of the decade – when the Bay State had more than 410,000 manufacturing jobs – Schwartz said 1,100 such positions have been added in the state this year, bringing the figure back up to 305,500 as of June 30. That trend could be further enhanced if a pending 150,000-square-foot lease at 445 Simarano Drive in Marlborough is completed by Cytyc Corp. As reported recently in Banker & Tradesman, the medical devices firm is negotiating to develop a state-of-the-art manufacturing plant at the one-time distribution center, a 175,000-square-foot building just off Interstate 495 owned by Ram Management of Maine.
As for industrial rental rates, CBRE showed a “nominal” gain to $6.79 per square foot following three straight quarters of declines, whereas Lincoln put the figure at $5.79 at midyear, a 15-cent increase from the first quarter. Spaulding & Slye put the figure at $5.73 per square foot, but recorded it as a dip from the first quarter when it had estimated an average of $5.92 per square foot.
Whatever the figure, Mullen maintained that “underlying demand in the industrial market continues to be strong,” with CBRE tracking 191 active requirements needing 10.5 million square feet. That compares favorably to the 120 requirements totaling 6.1 million square feet found in the market at midyear 2005, said Mullen, who explained that 65 of the prospects are seeking 50,000 square feet or more of space and said approximately half of the firms are pursuing lease completions by year’s end.
The overall vacancy rate for industrial space is currently at 12.6 percent, according to Lincoln, a slight dip from 12.8 percent in the first quarter, with the highest mark of 16 percent found in the Interstate 495/Route 2 West submarket. CBRE posted an overall vacancy of 16.4 percent, ranging from a low of 6.9 percent in the Route 128 West submarket to a high of 26.7 percent for Route 3 North. Spaulding & Slye had the highest average at 19.7 percent, with Route 128 West the lowest at 6.3 percent and the highest in the Northwest submarket, where industrial vacancies are an alarming 34.7 percent.
Besides several building sales, Burgess Properties brokered 120,000 square feet of industrial leases in the first half of 2006, headlined by a 36,000-square-foot lease to Biogen Idec at 61 Medford St. in Somerville and the relocation of Lady Grace Stores from Malden to 25,000 square feet at 5 Commonwealth Ave. in Woburn. “I’m pleased,” Burgess said in assessing the first half of 2005, despite the unanticipated dearth of activity near Logan, a market where Burgess has had a presence for many years. “I’m hoping it’s just a blip in the market,” he said.
