Industrial Update: Greater Boston Real Estate Market Mid-Q4 2019
Well, taking a look at where we are mid quarter this 2019 it’s still at peak. In fact, Dr. Glenn Mueller, who’s Market Cycle Monitor we track, has the Boston MSA for industrial at peak. You can see it here.
What’s happening with the industrial market in greater Boston area?
So let’s take a look at the stats. What does this tell us? Well, going back and looking at 2019 year-to-date we’ve had a series of trades. In fact, we’re on track right now to close the year at about 97 deals. Now it’s off peak. 2018 saw over 41 deals more last year in the market. So what does that mean? Well, it means that deal velocity’s slowing down a little bit. It hasn’t impacted the average price per square foot. In fact, the average price per square foot for industrial, between $1M and $20M, has gone up, and it’s trading 42% over the long-term average running back to 2006. So it’s definitely a hot segment.
Lack of industrial land and in Essex, Middlesex, and Rockingham counties to develop new industrial buildings
And one of the things that’s constraining growth in that market right now is the fact that we just don’t have land in Essex, Middlesex, and Rockingham counties to develop new industrial buildings. The rents aren’t high enough to support new construction, and the construction prices are so high. So let’s look at the data. Average price per square foot for rents right now in this segment as reported by CoStar is $10.28 per square foot. So I went back to 2010 and looked at the trough in rents, and we’re 32% higher. So if you had rented your building out in 2010 you should be seeing at least 32% higher rents today than you saw nine years ago. So that’s definitely something that’s impacting the valuations and the growth in the market. We’re also seeing a tight market. In fact, the market’s being reported as 3.5% vacant. That is really tight. And when you see that kind of vacancy rate in the market, we need new construction, or rents are going to go up to a point where tenants just can’t afford to pay them anymore, and they’re going to be frustrated because the market supply just cannot accommodate new industrial demand.
Greater Boston industrial rents appreciating while vacancy rates remain low
So an interesting situation we’re in. Availability rate, which is the leading indicator for landlords expecting vacancy to come into their property, or available space to come into the property before it’s gone vacant, is moving up a little bit. But we’re not seeing any signs of a slow down in that sector in industrial. In fact the pricing is still appreciating, the rents are still going up. The only thing we’re seeing is deal volume decline somewhat, and that may just be a result of either sellers, owners deciding to hold because you think you’re going to get more in the next couple years, not knowing where to go with the money, or the fact that buyers just aren’t willing to pay the prices. But we’re still seeing trades happen, so I’m not sure that that’s necessarily the case. Overall, I also look at GDP to get a sense of what’s happening in the industrial sector. There is a correlation between manufacturing and GDP. So I pulled this chart here, and it basically shows that we’re kind of staying flat on GDP. Nothing really exciting happening there. So, not seeing a leading indicator for change in the industrial market. So thanks for tuning in, watching us. Subscribe to our channel, and look forward to seeing you next time with the next market update.
About Jeremy Cyrier, CCIM
Jeremy believes that investing in commercial real estate creates durable wealth, but it can be difficult for owners to find the right buyers for multi-million dollar properties who perform. Over the last 18 years he has become an expert in high-value commercial real estate sales in Massachusetts and New Hampshire, negotiating the sale of more than 1,000 properties for his clients. That’s why 81% of his transactions come from repeat business.
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