Robust Demand for Industrial Space Pushes Rental Rates to Unprecedented Growth
BOSTON- In a new report from CBRE, the Greater Boston industrial market is quickly becoming one of the strongest in the nation and continued to build momentum at a record-setting pace in the second quarter of 2021, with asking rates rising rapidly.
Boston has earned a seat at the table with the country’s most historically dominant industrial markets after clocking unprecedented year-over-year rent growth of 14.8%, the sixth-largest growth in the nation for taking rents, finishing the quarter at $10.53 per sq. ft. Almost 1.5 million sq. ft. of positive absorption was recorded in the second quarter and 2.7 million sq. ft. year-to-date, highlighting the explosive growth in the region.
“This level of demand will continue to outpace existing supply at minimum for the next 18 to 24 months,” said Rachel Marks, Industrial Market Practice Leader for CBRE’s Greater Boston region. “With only 801,000 sq. ft. of speculative development under construction, and potential future development sites dwindling, a supply crisis is on the horizon for the Greater Boston industrial market. This expected supply imbalance will put further pressure on rents and will ultimately drive them to new historic highs.”
The overall availability and vacancy rates reached historic lows in the second quarter of 2021. The availability rate declined by 120 basis points (bps) quarter-over-quarter to 4.7%, while the vacancy rate dropped by 90 bps quarter-over-quarter to 2.5%. The flurry of demand that intensified in early 2020 remains as strong as ever with approximately 35 million sq. ft. of tenants actively seeking space. More than 2.5 million sq. ft. of leasing activity in the second quarter was driven by wholesale/retailers, 3PLs, life science and e-commerce companies.
Additionally, the sublease rate in the Greater Boston Industrial market has remained flat since Q4 2019, further demonstrating high demand for space and the overall strength of the market.
Because of Boston’s top-tier leasing fundamentals, capital markets’ liquidity is at an all-time high. Some of the largest capital sources in the country are prioritizing Boston industrial product within their allocations, according to CBRE. The diversity and depth within the capital markets includes industrial REITs, institutional pension fund advisors, private equity capital, life insurance companies, foreign capital allocators, and ultra-high net worth investors, among others.
“As year-over-year market rents soar and investors now underwrite market rent growth in the 7% to 10% range for 2022, it is no surprise that cap rates have plummeted, resulting in record pricing on a per-sq.-ft. basis,” said Marks. “Boston’s significant barriers to entry and overall supply/demand imbalance will drive growth and maintain strong market fundamentals, fueling capital flows to Boston for years to come.”