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Inside... » Manufacturing market posts largest absorption in more than a year » Warehouse rents reach highest price since 2004 » Six consecutive quarters of positive absorption for the Flex market » Manufacturing market remains strong along Route 128 » Limited availability for warehouse space in The Boroughs » Heavy warehouse absorption in Route 128 North BOSTON INDUSTRIAL MARKET FIRST QUARTER 2017 INDSTATUS WAREHOUSE SPACE *Unless otherwise noted, all data is as of or for the quarter ended March 31, 2017.

BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

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Page 1: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

Inside...

» Manufacturing market posts largest absorption in more than a year

» Warehouse rents reach highest price since 2004

» Six consecutive quarters of positive absorption for the Flex market

» Manufacturing market remains strong along Route 128

» Limited availability for warehouse space in The Boroughs

» Heavy warehouse absorption in Route 128 North

BOSTON INDUSTRIAL MARKETFIRST QUARTER 2017

INDSTATUS

WAREHOUSE SPACE

*Unless otherwise noted, all data is as of or for the quarter ended March 31, 2017.

Page 2: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

2 REAL ESTATE OUTLOOK BOSTON INDUSTRIAL MARKET Q1 2017

BOSTON INDUSTRIAL MARKETFIRST QUARTER 2017

The Greater Boston industrial market opened up 2017 modestly. Despite overall negative absorption of 54,000 square feet this quarter, the industrial market, consisting of manufacturing and warehouse space, has positively absorbed over 1.0 million square feet over the last twelve months. Experiencing positive absorption for the fourth consecutive quarter, the manufacturing market saw 103,000 square feet positively absorbed in the first quarter of 2017. This activity brought down the vacancy rate by 0.7 percentage points to 11.3 percent, while the average asking rent increased slightly to a current price of $8.38 per sf. Route 128 North led the charge in the manufacturing market, with many tenant move-ins driving the absorption figure to positive 80,000 square feet, including UPS for 77,000 square feet at 40 Fordham Road in Wilmington. The warehouse market saw its eighteen quarter positive absorption streak come to an end, this quarter experiencing 157,000 square feet of negative absorption. That being said, there were certainly some bright spots in the market. Route 128 North also thrived in the warehouse market, with 222,000 square feet of positive absorption as well as a drop in the vacancy rate of a full percentage point to 5.8 percent. Interstate 495 West also performed well, positively absorbing 14,000 square feet while extending its streak to four quarters straight.

The flex market continues to function robustly, as flex space in the Greater Boston area has now been positive for six consecutive quarters. In the first quarter of the year, there were 9,000 square feet of positive absorption, while the vacancy rate and average asking rent remained steady at 11.4 percent and $10.36 per sf, respectively. While the I-495 submarkets saw 25,000 square feet positively absorbed this quarter, the Boroughs (Northborough, Westborough, Southborough, and Marlborough) were the front runners, collectively absorbing 71,000 square feet, while vacancy dropped to an all-time low of 10.5 percent.

ECONOMY

In mid-March, The Federal Reserve raised the interest rate for the second time in three months, to 1 percent. As the economy remains strong and confident, the forecast calls for more subtle hikes throughout 2017 and into 2018. Leaning on its sturdy foundation of education and health care, Greater Boston continues to flourish, adding more jobs to the market while achieving lower than average national unemployment rates. As the overall Boston economy continues to strengthen, the industrial and flex markets have remained very consistent and strong over the last several years. With strong leasing activity expected to continue throughout the year, expect more of the same to come.

Conservative Start to 2017 for the Industrial MarketMarket activity spearheaded by Route 128 North

*pp = percentage points

** = Trendlines stats exclude Flex

INDUSTRIAL TRENDLINES

5-YEAR TREND CURRENT QUARTER

VACANCY R ATES

9.8%Vacancy Rates increased slightly

ABSORPTION

-54k SFAbsorption decreased in Q1

ASKING RENTS

$6.70 PSFAsking rents rose slightly

RBA DELIVERED

+91.2k SFNew Inventory delivered in 495 South

CAP R ATE

6.9%Cap rates were unchanged in Q1

SALE PRICE

$83 PSFSale prices averaged $83 per sf in Q1

JOB GROW TH

+1,146 jobsJob growth increased in Q1

VACANCY RATESTotal Market, Industrial

Data Point:Text: Vacancy rates increased slightly

9.8%

ABSORPTIONTotal Market, Industrial

Data Point:Text: Absorption decreased in Q1

--54k SF

ASKING RENTSTotal Market, Industrial

Data Point:Text: Asking rents rose slightly

$6.70 PSF

RBA DELIVEREDTotal Market, Industrial

Data Point:Text: New Inventory delivered in 495 South

+91,200 SF

AVERAGE CAP RATETotal Market, Industrial

Data Point:Text: Cap rates were unchanged in Q1

6.9%

AVERAGE INDUSTRIAL SALE PRICETotal Market, Industrial

Data Point:Text: Sale prices averaged $83 per sf in Q1

$83 PSF

INDUSTRIAL EMPLOYMENTBoston Metro

Data Point:Text: Job growth increased in Q1

+1,146 jobs

Page 3: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

REAL ESTATE OUTLOOK BOSTON INDUSTRIAL MARKET Q1 2017 3

• The Greater Boston warehouse market, comprised of 57 MSF of inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed.

• Since 2013, tenants have positively absorbed over 6.4 million sf of warehouse space.

• Absorption has been positive in Route 128 North for the last five quarters, with 222,000 sf this quarter, the most since Q2 2013.

• While the overall vacancy rate rose slightly to 9.4 percent, both Route 128 North and I-495 West saw vacancy decrease, to 5.8 percent and 6.0 percent, respectively.

• The average asking rent for warehouse space in Greater Boston is currently $6.05 per sf, with the low being $5.79 per sf in I-495 South and the high being $6.78 per sf in Route 128 North.

• While 5 Fifth Street in Peabody is still under construction, Cabot Business Park (600 West Street) in Mansfield was completed and delivered to the market, adding 91,200 sf to the 495 South market.

• Stavis Seafoods moved into 45,000 sf at 1 Technology Park in Peabody, while S.G. Torrice Company moved into 34,000 sf at 7 Lopez Drive in Wilmington, both contributing to the positive absorption in Route 128 North.

• Clarion Partners sold 400 Manley Street in West Bridgewater to Turtle Bay Partners for $13,100,000 (216,400 sf, $60.54 per sf).

WAREHOUSE

ABSORPTION & VACANCY

ABSORPTIONTotal Market, Class A & B, Warehouse

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

(400)

(200)

-

200

400

600

800

1,000

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Thou

sand

s SF

Absorption Qtrly Vacancy Rate

ASKING RENTS

ASKING RENTSTotal Market, Class A & B, Warehouse

$4.50

$4.70

$4.90

$5.10

$5.30

$5.50

$5.70

$5.90

$6.10

$6.30

$6.50

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Total Market Route 128 I-495

PerS

q. F

t.

Boston Warehouse Market Indicators by Submarket

Route 128 North 9,910 0 222 325 3.5% 8.1% 0.6% 5.8% 6.78$ 7.3%

Route 128 West 154 0 0 0 0.0% 0.0% 0.0% 0.0% NA -

Route 128 South 12,585 0 (42) 559 4.9% 18.4% 2.8% 8.6% 6.01$ 2.3%

Route 128 Submarkets 22,649 0 180 884 4.2% 13.7% 1.8% 7.3% 6.24$ 4.5%

I-495 North 8,010 0 (26) 61 0.8% 9.3% 5.5% 8.9% 6.18$ 8.4%

I-495 North High Bay 3,308 0 0 63 2.0% 5.5% 4.6% 3.1% 6.35$ 0.6%

I-495 West 5,359 0 14 370 7.4% 10.0% 0.0% 6.0% 5.92$ 4.2%

I-495 West High Bay 1,787 0 0 165 10.2% 9.1% 0.0% 9.1% NA -

I-495 South 17,894 91 (326) (597) -3.9% 17.3% 0.4% 14.6% 5.79$ 2.6%

I-495 South High Bay 8,044 91 (157) (325) -4.7% 20.6% 0.0% 14.6% 6.00$ 2.4%

I-495 Submarkets 31,264 91 (337) (166) -0.6% 14.0% 1.7% 11.7% 5.88$ 2.5%

I-495 High Bay 13,139 91 (157) (97) -0.8% 15.2% 1.2% 10.9% 6.07$ 2.7%

Route 128 & I-495 Combined 53,913 91 (158) 718 1.5% 13.9% 1.7% 9.8% 6.02$ 0.4%

Central Areas 3,048 0 1 103 3.4% 4.0% 3.5% 1.9% 6.74$ 3.5%

TOTAL 56,960 91 (157) 821 1.6% 13.4% 1.8% 9.4% 6.05$ 0.2%

ALL AMOUNTS, EXCEPT PERCENTAGES AND DOLLAR FIGURES IN THOUSANDS. High Bay denotes 28'+ ceiling height

*LTM = Last Twelve Months // **LTM absorption as a percentage of occupancy levels twelve months ago // ***Twelve months change in asking lease rate

SUBMARKET INVENTORYDELIVERIES

(SF)QUARTER NET ABSORPTION

LTM* NET ABSORPTION

4QTR***CHANGE

GROWTH**DIRECT

AVAILABILITYSUBLET

AVAILABILITYTOTAL

VACANCYAVERAGERATE PSF

Prepared by: Transwestern RBJ Page 15

Page 4: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

4 REAL ESTATE OUTLOOK BOSTON INDUSTRIAL MARKET Q1 2017

BOSTON INDUSTRIAL MARKETFIRST QUARTER 2017

• Manufacturing space in the Greater Boston area experienced positive absorption for the fourth straight quarter as 103,000 sf was positively absorbed, bringing the twelve month total to 233,000 sf.

• For the first time in two years, all six Route 128 and I-495 submarkets saw manufacturing space positively absorbed, accounting for 99,000 sf of absorption.

• Overall vacancy of manufacturing space in the Greater Boston area dropped 0.7 percentage points from last quarter to a current rate of 11.3 percent.

• The Route 128 North market led the market, contributing 80,000 sf of positive absorption, while experiencing a drop in vacancy from 7.9 percent to 5.5 percent, and an increase in the average asking rent to $11.94 per sf.

• While there is only 628,000 sf of manufacturing inventory in Route 128 West exists, the vacancy rate is currently 1.0 percent.

• Approximately 66 percent of overall vacancy belongs to three buildings, which if removed from the inventory, would drop vacancy to 4.2 percent.

• Route 128 North saw the largest move in, as UPS occupied 77,000 sf at 40 Fordham Road in Wilmington.

• Rand-Whitney sold 125 Fisher Street in Westborough to Neo Technologies for $10,000,000 (198,000 sf, $50.51 per sf).

Boston Manufacturing Market Indicators by Submarket

Route 128 North 3,362 0 80 152 4.8% 8.5% 0.7% 5.5% 11.94$ 4.5%

Route 128 West 628 0 3 54 8.7% 3.1% 0.0% 1.0% 9.50$ -

Route 128 South 2,061 0 8 54 3.0% 16.4% 0.0% 11.6% 5.21$ 4.9%

Route 128 Submarkets 6,052 0 91 260 4.6% 10.6% 0.4% 7.1% 8.81$ 2.1%

I-495 North 3,207 0 5 (105) -4.6% 32.6% 1.9% 28.6% 8.27$ 5.7%

I-495 West 1,587 0 3 23 1.5% 6.9% 0.0% 4.4% 10.30$ 3.2%

I-495 South 1,723 0 0 31 1.9% 18.2% 0.6% 7.0% 5.63$ 3.3%

I-495 Submarkets 6,517 0 8 (52) -1.0% 22.5% 1.1% 17.0% 8.37$ 2.5%

Route 128 & I-495 Combined 12,568 0 99 209 1.9% 16.8% 0.7% 12.3% 8.51$ 0.7%

Central Areas 1,444 0 4 24 1.7% 7.7% 0.0% 2.5% 6.75$ 1.3%

TOTAL 14,012 0 103 233 1.9% 15.9% 0.7% 11.3% 8.38$ 1.2%

ALL AMOUNTS, EXCEPT PERCENTAGES AND DOLLAR FIGURES IN THOUSANDS

*LTM = Last Twelve Months // **LTM absorption as a percentage of occupancy levels twelve months ago // ***Twelve months change in asking lease rate

DIRECTAVAILABILITY

SUBLETAVAILABILITY

TOTALVACANCY

AVERAGERATE PSF

4QTR***CHANGE

GROWTH**SUBMARKET INVENTORYDELIVERIES

(SF)QUARTER NET ABSORPTION

LTM* NET ABSORPTION

Prepared by: Transwestern RBJ Page 17

ABSORPTION & VACANCY

ASKING RENTS

ASKING RENTSTotal Market, Class A & B, Manufacturing

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Total Market Route 128 I-495

PerS

q. F

t.

ABSORPTIONTotal Market, Class A & B, Manufacturing

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

(200)

(100)

-

100

200

300

400

500

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Thou

sand

s SF

Absorption Qtrly Vacancy Rate

MANUFACTURING

Page 5: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

REAL ESTATE OUTLOOK BOSTON INDUSTRIAL MARKET Q1 2017 5

• Greater Boston flex space saw 9,000 sf positively absorbed in the first quarter of 2017, extending its streak to six consecutive quarters, with 989,000 sf absorbed over that time.

• Both the vacancy and average asking rent remained steady from last quarter, as vacancy nudged 0.1 percentage points to 11.4 percent and the average asking rent increased ever so slightly to $10.36 per sf.

• Route 128 North experienced the largest level of absorption, positively absorbing 76,000 sf while increasing the positive streak to five quarters in a row.

• The Boroughs (Northborough, Westborough, Southborough, and Marlborough) saw 71,000 sf positively absorbed this quarter, the most in over a year.

• Vacancy is the Central Areas, which consists of all markets except Route 128 and I-495, is currently 4.8 percent, more than 10 percentage points below the five year average of 15.0 percent.

• Notable move-ins included Mintra at 417 South Street in Marlborough for 22,000 sf, and Fresenius at 20 Dan Road who have taken 48,000 sf and awaiting a move in shortly.

• Three new leases were signed at 565 University Avenue in Norwood totaling 85,000 sf with Dal-Tile, Hirsch Glass Corporation, and Boston Mutual Life Insurance.

• Grander Capital Partners sold 110 Shawmut Road in Canton to The Seyon Group and Wheelock Street Capital for $116 per sf ($8,628,080, 74,380 sf).

Boston Flex Market Indicators by Submarket

Route 128 North 8,448 0 76 240 3.0% 11.5% 2.2% 5.9% 13.61$ 14.3%

Route 128 West 1,186 0 (74) (58) -5.7% 22.0% 2.6% 14.2% 11.77$ 19.0%

Route 128 South 3,533 0 (23) 57 1.7% 12.0% 0.8% 7.4% 10.05$ 26.0%

Route 128 Submarkets 13,167 0 (21) 239 2.0% 12.6% 1.9% 7.0% 12.47$ 15.0%

I-495 North 6,088 0 9 (13) -0.3% 29.2% 4.6% 24.8% 6.79$ 9.2%

I-495 West 4,608 0 17 25 0.6% 12.9% 2.4% 11.0% 9.01$ 0.5%

I-495 South 3,253 0 (1) 55 1.8% 13.5% 0.0% 6.5% 9.33$ 0.7%

I-495 Submarkets 13,949 0 25 66 0.6% 20.2% 2.8% 16.0% 8.08$ 4.5%

Route 128 & I-495 Combined 27,116 0 4 306 1.3% 16.5% 2.3% 11.6% 9.54$ 3.4%

Central Areas 839 0 5 65 8.1% 7.5% 0.0% 4.8% 30.00$ -

TOTAL 27,955 0 9 370 1.5% 16.2% 2.3% 11.4% 10.36$ 2.6%

ALL AMOUNTS, EXCEPT PERCENTAGES AND DOLLAR FIGURES IN THOUSANDS

*LTM = Last Twelve Months // **LTM absorption as a percentage of occupancy levels twelve months ago // ***Twelve months change in asking lease rate

DIRECTAVAILABILITY

SUBLETAVAILABILITY

TOTALVACANCY

AVERAGERATE PSF

4QTR***CHANGE

GROWTH**SUBMARKET INVENTORYDELIVERIES

(SF)QUARTER NET ABSORPTION

LTM* NET ABSORPTION

Prepared by: Transwestern RBJ Page 16

ABSORPTION & VACANCY

ABSORPTIONTotal Market, Class A & B, Flex

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

(200)

(100)

-

100

200

300

400

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Thou

sand

s SF

Absorption Qtrly Vacancy Rate

ASKING RENTS

ASKING RENTSTotal Market, Class A & B, Flex

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

$11.00

$12.00

$13.00

$14.00

2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1

Total Market Route 128 I-495

PerS

q. F

t.

FLEX

Page 6: BOSTON INDUSTRIAL MARKET - Transwestern · inventory, experienced its first quarter of negative absorption in eighteen quarters, with 157,000 sf negatively absorbed. • Since 2013,

METHODOLOGY

The information in this report is the result of a compilation of information on industrial properties located in the Boston metropolitan area. This report includes single-tenant, multi-tenant industrial properties 20,000 SF and larger, excluding industrial warehouse, flex, and manufacturing properties owned and occupied by a user or government agency.

CONTACT

Chase BourdelaiseDirector of Research, Northeast [email protected]

T 617.439.6000 F 617.439.9707www.transwestern.com/boston

99 High Street, 30th FloorBoston, MA 02110

Tom HoveyResearch [email protected]

Copyright © 2017 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.