Industrious professionals are driving a drastic uptick in industrial transaction activity, as tenants take advantage of extremely favorable market conditions.
There are some 2 million square feet of industrial deals in the works right now in Eastern Massachusetts, a boon to a market that in the past has been devastated by corporate consolidations and flat activity.
Nowhere has that activity been more evident than along the southern portions of Interstate 495, which has seen its available industrial space decrease by roughly 1.9 million square feet, according to information provided by Richards Barry Joyce & Partners (RBJ). For context, the area’s availability rate reached 43.5 percent for high-bay space in the first quarter of 2010. Today, that has been whittled down to 28.7 percent.
Much of that activity has occurred in the Taunton and Lakeville areas. Cold Storage Solutions just signed a lease for 186,000 square feet at 310 Kenneth Welch Drive in Lakeville, taking the entire building. New England Pottery signed for 239,000 square feet in Taunton. Direct Tire has taken 135,000 square feet, also in Taunton. Horizon Beverage of Avon just purchased a 400,000-square-foot former General Motors plant in Norton for about $20 million, to be used as a distribution center for Horizon.
And Rhode Island Novelty is in negotiations to purchase a shuttered A.J. Wright distribution warehouse in Fall River. James Connor handles real estate and acquisitions for the Cumberland, R.I.-based novelty item distributor and confirmed the company is now negotiating a deal to purchase the building from owner TJX Cos. While he would not confirm a purchase price, sources knowledgeable about the deal said they will likely pay in the neighborhood of $22-per-square-foot, or $11 million.
Elsewhere in the industrial market, sources tell Banker & Tradesman Potpourri Designs is considering taking 380,000 square feet on Independence Drive in Devens.
Tenants In Control
“I’ve certainly seen an uptick in velocity … and there are some pretty large deals in the works,” Steve Clancy, an executive vice president focusing on industrial space for brokerage CB Richard Ellis, told Banker & Tradesman.
Much of that velocity was attributed to the fact that the current market is strongly favoring tenants, said William Bailey, managing director for Jones Lang LaSalle. Competition for tenants has gotten so fierce that landlords are being forced to drop their rental rates anywhere from 20 percent to 40 percent, he offered.
Bailey related a story of a client in Avon considering relocation. Bailey said he found alternatives and got proposals from potential landlords. He secured a transaction with one, but when he went back to the client’s current landlord with the deal in hand, the landlord completely restructured his original proposal and reduced rent by 50 percent.
Combine that kind of desperation with widespread offerings of free rent and extra tenant improvement dollars, and it’s easy to see that tenants have the upper hand.
“You’re seeing tenants that might be under contract for the $5 per square-foot range, that are being offered $3 rents,” Bailey said of the southern 495 industrial market. “It is certainly a tenant’s market today. Landlords are coming at these deals very aggressively … in the form of contract rent [and] free rent periods. In some cases if it’s an institutional owner, there’s more [tenant improvement] money available.”
Industrial brokers told Banker & Tradesman that in many cases, if a landlord loses a tenant today, they’ll still be stuck finding a new tenant at market rates anyways, and so might as well pull out all the stops to try and keep existing tenants. To re-tenant a building after it is vacated, landlords are still dealing with the same market dynamics, concessions and cash-flow considerations, plus the brokerage costs associated with drumming up new business.
“Over the past 36 months, a lot of these industrial and warehouse users renewed short-term and now they are a little more optimistic, and decision makers are more comfortable going to the market … to potentially lower their occupancy costs,” said Robert Byrne, vice president at Richards Barry Joyce & Partners.
