By Dion Sorrentino | June 2020
The COVID-19 pandemic has had a large and immediate negative impact on business and real estate, yet industrial is thriving. After growth in e-commerce demand as remote work and retail restrictions became the current practice in Massachusetts and beyond, industrial properties have seen a steady stream of tenant activity as e-commerce businesses pick up in volume. In addition to the e-commerce growth, warehouse space is in high demand from a variety of users across industries responding to COVID-related needs, as well as GMP manufacturing space.
Once again, Amazon is the big player in the Greater Boston industrial market. From the end of Q1 and through Q2, Amazon continued to push its expansion in the region, showing no signs of slowing because of current conditions and continuing to look for new locations. It has now proposed a new urban warehouse location focusing on Dorchester Avenue in South Boston for a potential 96,000 SF facility. As it currently stands, Amazon occupies nearly 12% of total high bay inventory in the market, which in a short amount of time has dwarfed the growth of WeWork in Boston, at approximately 2.2% of the urban office market.
Amazon has pushed tremendous growth in the last few years with its large-scale deals, at 1600 Osgood in North Andover, the former Necco site at 135 American Legion Highway in Revere, and 50 Otis Street in Westborough. With the new urban interest and LOIs and signed deals mainly in the South and West markets, Amazon is approaching four million SF of existing space, while new construction at the aforementioned sites could potentially more than double that footprint. These plans add up to an Amazon construction and renovation pipeline of nearly 4.8 million SF in the coming years, compared to just under two million SF of industrial space underway for the rest of the market.
In addition to Amazon, the industrial market has also attracted a tremendous amount of leasing and investment. Industrial product continues to trade on the market, not facing a significant negative impact from COVID-19. Leasing has bolstered the strength of the market as well, with manufacturing space being used for PPE production. GMP manufacturing is leasing from biotech and life science firms and is competing for land plays. Meanwhile, traditional retailers continue to push towards e-commerce to adapt, particularly TJX, seeking more space after accelerating its online growth. Strong demand has allowed both cap rates and rental rates to remain strong, and further, some groups have been willing to exceed asking rents to get space immediately. New product on the 495 belt is leasing for over $8.50 NNN and with sales priced north of $170/SF.
As the local, national, and international economies continue to adapt because of COVID-19, industrial product is undergoing a renaissance from renewed and growing investment and tenant activity. Boston’s industrial market keeps growing as developers continue with speculative construction projects and meet with quick lease-ups at or prior to delivery. Along with life science, industrial seems to be a safe play in uncertain times.