Q2-2018-IndustrialReport

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METRO BOSTON Q2 2018 | INDUSTRIAL REPORT

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

ASKING RENT ($/SF)

UNDER CONSTRUCTION (SF)

7.5%

140,241

$9.14

2,257,606

303 Congress Street | Boston, MA 02210 | 617.457.3400 | www.NAIHunneman.com

INDUSTRIAL STATISTICS WAREHOUSE

2018

WAREHOUSE

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT ($/SF)

TOTAL

93,437,196

6,295,131

6.7%

(23,502)

325,098

$7.30

Total Vacancy

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 TRENDS • A handful of large move-outs in Greater Boston’s warehouse market pushed net absorption into the red for the first time in over a year. Big-Hearted Books, Serta, EMS Warehousing and CGI Technologies all vacated space during the second quarter.That being said, vacancies only inched up by 10 basis points over the quarter, and rates remain well below historical averages. Strong leasing and persistent demand across multiple industrial sectors, including e-commerce, bodes well for warehouse market fundamentals in the near term. • Robust demand for prime warehouse space has led to more build-to-suit construction in the marketplace. National Development and Charles River Realty are planning a fully-refrigerated wholesale center at 130 Eastern Avenue in Chelsea for Baldor Boston, LLC.Work continues on Spears Manufacturing’s new 112,500-square-foot distribution center adjacent to Norton Commerce Center.Americold Logistics’ 173,000-square- foot refrigerated facility in Middleborough, which will support Ocean Spray production and operations, is slated to deliver later this year as well. • Some developers have opted for speculative construction.The Gutierrez Company recently broke ground on a 220,106-square-foot facility at the Crossroads Industrial Park in Northborough. Campanelli continues to move forward on the 127,500-square- foot 353 Maple Street and the 300,000-square-foot 351 Maple Street, both in Bellingham.All three projects are slated to deliver by the end of this year.While the construction pipeline has expanded, developers will likely struggle to keep pace with tenants’ robust demand for modern, state-of-the-art warehouse product. • Investors remain active in the Greater Boston warehouse market. In a sale-lease back, The Seyon Group acquired the 350,469-square-foot 560West Street in Mansfield from owner-user Medline Industries for $38.5 million or $110/SF. The tenant is rumored to be planning a new 800,000-square-foot facility in Uxbridge, and plans to lease their current location for a number of years. Infill warehouse product has been a highly desirable asset class, too. Calare Properties purchased the 31,950-square- foot 777 N Shore Road in Revere for $12.4 million or $388/SF at a 6.7% cap rate. Developers also remain attracted to older product facing functional obsolescence. Exeter Property Group divested 26 Cook Street in Billerica to Premier Storage Investors, who plans to redevelop the property into a self-storage facility. Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 • The nation’s tight labor market remains a headwind for warehousing and distribution. Given the meteoric rise in e-commerce and online shopping, the trucking industry in particular is facing a shortage of workers. One estimate puts national job openings in this industry at 63,000 this year, and the number is expected to increase moving forward.As a result, trucking wages are also rising swiftly.Year-over-year growth was roughly 4% of as May, which is nearly double overall national wage growth.While Boston is not a major national distribution hub like Atlanta or Chicago, these national trends are sure to have a local impact.

14%

Total Vacancy TOTAL VACANCY 12%

14% 10%

12% 8%

10% 6%

8% 4%

6% 2%

5-Year Historical Average = 8.7%

4% 0

2013

2014

2015

2016

2017

2018

2013

2014

2015

2016

2017

2018

NET ABSORPTION & SUPPLY Net Absorption

2,500

Net Absorption 2,000

2,500 1,500

2,000 1,000

1,500 500

SF (000s)

1,000

500 -500

SF (000s)

-1,000

sking Rent ($/SF) $7.30

2013

2014

2015

2016

2017

2018

Net Absorption New Supply

-500

-1,000

2013 Notable Transactions 2014 NOTABLE TRANSACTIONS

2015

2016

2017

2018

Net Absorption New Supply

Medline

Champagne Logistics Arnold Industries (Bossard)

Archive America

Lighthouse Fiber

50K SF

125K SF

200K SF

275K SF

350K SF

Route 495 South Route 128 South Route 128 North Route 495 West

INDUSTRIAL STATISTICS FLEX / R&D

FLEX / R&D

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT ($/SF)

TOTAL

52,505,099

4,939,252

9.4%

114,507

424,837

$11.39

Vacancy by Submarket VACANCY BY SUBMARKET

TRENDS • Greater Boston’s Flex/R&D market continues to benefit from the growing tech, biotech, and light manufacturing industries. Vacancies ended the second quarter at 9.4% as the market absorbed more than 100,000 square feet. Repligen took occupancy of close to 65,000 square feet at 111 Locke Drive in Marlborough, and ETM Manufacturing moved into 23,200 square feet at 24 Porter Road in Littleton after purchasing the building. Persistent demand from technology-related companies is expected to drive growth in the local Flex/R&D market in the coming quarters. • The Route 128 Loop boasts some of the strongest Flex/R&D fundamentals in the region. Vacancies ended the second quarter of 2018 at just 5.8%; this is about half the rate in the Route 495 Loop and well below the rate in the Urban Core. Asking rents are well above the metrowide average, at $14.55/SF. However, space in close proximity to Boston maintains a $6-11/SF premium over space located in Route 128 South and Route 128 North. Users like Novanta (147,370 SF) and Alkermes (5,535 SF) are the types of firms leasing Flex/R&D space in the Route 128 markets. • Analog Devices announced plans to consolidate its facilities across Massachusetts and relocate its headquarters from Norwood to Wilmington, where the company already maintains a large footprint. As part of a nearly $160 million project, the firm is planning to renovate its existing facilities (500,000 square feet of office, Flex/R&D and manufacturing space) as well as construct an additional 175,000-square-foot Flex/R&D building. The project also includes 50,000 square feet of community space (i.e., a fitness center and café). The company will keep a small presence in Norwood and Chelmsford as well as its recently opened startup incubator in downtown Boston. Work on Analog Devices’ expansion is expected to finish between 2019 and 2020. • Infill locations are in high demand from both Flex/R&D users and investors. In Boston’s Seaport, 908 Devices is expanding their production operations and moving its headquarters to the Pappas Commerce Center in the third quarter. The manufacturer has leased 37,500 square feet at 645 Summer Street leaving 18,000 square feet behind at the Innovation & Design Building. Rafi Properties recently acquired the Ames Business Park, anchored by Greentown Labs, in Somerville during the second quarter. The site includes a mix of office, flex/R&D and industrial buildings. • With vacancies declining by 580 basis points over the last 5 years, it’s not surprising Flex/R&D lease rates are surging in Greater Boston. Space runs from $7-$10/SF in the Route 495 Loop to the high-teens to low-twenties in the Route 128West/Northwest and Urban Core submarkets. Overall asking rents rose to $11.39/SF in the second quarter; increasing by 7.6% over the last 12 months. Infill locations, close to population centers, have seen the steepest inclines in recent years. From 2014-18, Flex/R&D asking rents expanded by 68% in the Urban Core, 40% in Route 128 Northwest, and 34% in Route 128West.As fundamentals remain strong, look for more rent gains in the near future.

19%

17%

14%

12%

10%

2013

2014

2015

2016

2017

2018

Route 495/Metrowest

Route 128

Urban Core

NET ABSORPTION AND ASKING RENT

700

$12

600

500

$10

400

300

200 SF (000s)

100

Net Absorption and Asking Rent

Asking Rent ($/SF) $11.39

-100

2014

2015

2016

2017

Net Absorption

Asking Rent

NOTABLE TRANSACTIONS Notable Transactions

Novanta

908 Devices

Consolidated Sterilizer

Cross River Center

Endeavor Robotics

5K SF

50K SF

95K SF

140K SF

185K SF

Route 128 Northwest

Urban Core Route 495 North

2018

CURRENT: 40 FT. PROPOSED: 51 FT. BOSTON

BALTIMORE CURRENT: 34-50 FT. PROPOSED: 51 FT. WILMINGTON CURRENT: 38-40 FT. PROPOSED: 45 FT.

CURRENT: 40 FT. PROPOSED: 51 FT. BOSTON

NY/NEW JERSEY CURRENT: 50 FT.

BALTIMORE CURRENT: 34-50 FT. PROPOSED: 51 FT. WILMINGTON CURRENT: 38-40 FT. PROPOSED: 45 FT.

PHILADELPHIA CURRENT: 40 FT. PROPOSED: 45 FT. NY/NEW JERSEY CURRENT: 50 FT.

$350 $220 MIL $130 MIL

PHILADELPHIA CURRE T: 40 FT. PROPOSED: 45 FT.

NORFOLK CURRENT: 50 FT. PROPOSED: 55 FT.

CURRENT: 42 FT. PROPOSED: 47 FT. SAVANNAH

CHARLESTON CURRENT: 45 FT. PROPOSED: 52 FT. NORFOLK CURRENT: 50 FT. PROPOSED: 55 FT.

CURRENT: 42 FT. PROPOSED: 47 FT. SAVANNAH

CHARLESTON CURRENT: 45 FT. PROPOSED: 52 FT.

NEW ORLEANS CURRENT: 45 FT. PROPOSED: 50 FT.

JACKSONVILLE CURRENT: 40 FT. PROPOSED: 47 FT.

NEW ORLEANS CURRENT: 45 FT. PROPOSED: 50 FT.

JACKSONVILLE CURRENT: 40 FT. PROPOSED: 47 FT.

MIAMI CURRENT: 52 FT.

SELECT PORT CHANNEL DEPTHS

15,000 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000

TEUs = Twenty-Foot Equivalent Unit

TOTAL TEUs

CURRENT ECONOMIC IMPACT 1,600 BUSINESSES USE PORT 7 , 0 0 0 L O C A L J O B S $5 BILLION IN LOCAL ACTIVITY imports 19.8979 13.2856 10.7981 6.92 5.7436 5.5219 imports 19.8979 13.2856 10.7981 6.92 5.7436 5.5219 ILLION IN DREDGING ION IN FEDERAL FUNDING ION I N S TAT E F U N D I N G

exports exports

imports imports

exports exports

imports imports

May-14 Canada Jul-14

Jul-15 10.9275 9.2943 8.3566 Sep-15

Jul-16

Jul-17

Jan-15 10.9275 Mar-15 May-15

Jan-16

Jan-17

Jan-18 19.8979 13.2856 10.7981 Mar-18

Mar-14

Sep-14 Canada Nov-14

Nov-15

Mar-16 11%

Sep-16 Nov-16 Canada China Mexico Ireland 9% 8% 8%

Mar-17 Canada China Mexico Ireland May-17

Sep-17 19.8979 13.2856 10.7981 Nov-17

May-16

May-18

11%

2 1 1

20% 13% 11%

*3-month moving average

CONLEY TERMINAL Title: Total Vehicles - Boston Autoport Mexico 9.2943 Mexico

9% 8% 8%

China

8.3566

Un te Kingdom 7.6755

6.92

6,000 United Kingdom 7.6755

6.92

7% 6%

Germany

7% Germany

6.6033

5.7436 3.3548

Germany

7% Germany

6.6033

5.7436

5,500

Rest ofWorld 57.1428

57% Rest ofWorld 43.3548 57% Rest ofWorld

Rest ofWorld 57.1428

43%

5,000

5.1261 4.5695 3.256 2.1884 1.6242 1.6119 1.608 1.3954 1.3115 1.1787 1.0843 0.9501 0.8976 0.8821 0.6468 0.592 0.582 0.5813 0.55 1.4733 92.8028

4,500

4,000

3,500

3,000

2,500

TOTAL VEHICLES Mar-13 Jun-13 Sep-13 Dec-13

Jun-14 Titl : La gest Trade Partners Mar-15 Jun-15 Sep-15

Jun-16

Jun-17

Mar-14 Title: Largest Trade Partners Sep-14 Dec-14

Dec-15

Dec-16

Dec-17

Mar-16

Mar-17

Mar-18

Sep-16

Sep-17

*3-month moving average

BOSTON AUTOPORT

Exports

Exports EXPORTS

Imports IMPORTS Imports

Mexico 9% Canada 11%

Canada 11%

Canada 20%

Mexico 9%

Rest of World 43%

China 8% U ited Kingdom 8% Germany 7%

China 8% United Kingdom 8% Germany 7%

China 13%

Rest of World 57%

Mexico 11% Ireland 7%

BOS TON : EXPE C T ED COMP L E T I ON 2 0 2 1 CHANNEL OLD DEPTH (FT) NEW DEPTH (FT) OUTER HARBOR 40 51 MAIN SHIPPING 40 47 RESERVE 40 47 LARGEST TRADE PARTNERS Germany 6% Germany 6

Sources: MassPort, U.S. Census Bureau

INDUSTRIAL STATISTICS MANUFACTURING

2018

MANUFACTURING

TOTAL INVENTORY (SF)

TOTAL VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT ($/SF)

Vacancy and Net Absorption

TOTAL

34,846,731

2,389,547

6.9%

49,236

6,702

$9.38

600

10%

2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017

400

200

VACANCY & NET ABSORPTION Vacancy and Net Absorption

TRENDS • Vacancies in Greater Boston’s manufacturing market ended the second quarter at 6.9% as the market absorbed close to 50,000 square feet. Rates continue their general downward trend, and market conditions remain favorable for all industrial product types. Leasing velocity has been steady, with CI Works, Replimune and New England Spas executing large deals most recently. Asking rents in the manufacturing market remain elevated above $9/SF for the third consecutive quarter, and are sitting 6.5% above year-ago levels. • Some large blocks of manufacturing space could hit the market in the near future. Ireland-based Ardagh Group announced plans to close its Milford beer bottling plant and lay off more than 200 workers. Round Hill Investments recently acquired New England Confectionary Company (maker of NECCO wafers) for $17.33 million in a bankruptcy auction. The candy maker already downsized operations at its 829,000-square-foot Revere facility by nearly 150,000 square feet in the third quarter of last year. The new owners are looking to revive the brand, but operations are only slated to continue through the fall. 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 • Coworking and incubating trends have made their way into Greater Boston’s manufacturing industry. CI Works, a manufacturing business incubator based in Amesbury, is opening an additional location at IndusPAD (the former Polartec plant) in Lawrence. The 90,000 square-foot secondary location will allow CI Works to house up to 60 additional companies. Given the growth in hi-tech and other manufacturing operations, the need for this type of collaborative space could expand in the future. • The region’s bustling life science industry continues to drive manufacturing activity in Greater Boston. Sanofi Genzyme is expanding its Framingham footprint, with plans to build a new 72,000-square-foot bio-manufacturing facility. In the first quarter, King Street Properties purchased the former headquarters of the MetroWest Daily News on New York Avenue in Framingham, with plans to renovate the property into a 107,350-square-foot multi-tenant life science facility. Replimune recently leased 63,000 square feet of manufacturing and translational science lab space in this building. Finally, Waters Corp., a scientific equipment maker, plans to add 135,000 square feet to its Taunton facility, which will be operational by 2022. • A handful of transactions took place in the second quarter. Casey & Hayes acquired the 107,869-square-foot 40 Murphy Drive in Avon for $7.4 million or $69/SF, while Invesco Advisors picked up a handful of older industrial/manufacturing assets in Cambridge from the Davis Companies. The Quad, which includes 75 Moulton Street, 10 Wilson Avenue, 40 Smith Place and 75 Smith Pace, is being marketed as transitioning life science campus. Given that the new owner is targeting biotech companies, the portfolio traded for $73 million or $364/SF. 2017 2017 2017 2018 2018 2017 2017 2017 2018 2018

-200

600 SF (000s)

10%

-400

400

-600

200

0 -800

2013

2014

2015

2016

2017

2018

-200

Net Absorption

Vacancy

SF (000s)

-400

-600

-800

2013

2014

2015

2016

2017

2018

Net Absorption

Vacancy

ASKING RENT Asking ent

$12

$10

Asking Rent $8

$12

$10

2014

2015

2016

2017

NOTABLE TRANSACTIONS Notable Transactions

2014 CI Works

2015

2016

2017

Replimune

New England Spas

ITG International

US Electrical Services

10K SF

35K SF

60K SF

85K SF

110K SF

Route 495 Northeast Framingham-Natick Route 495 West Route 128 North Urban Core

CAPITAL MARKETS STATISTICS Property City/Submarket Mansfield Property

Property

100 Upland Drive 100 Upland Drive Norwood

560 West Street 560 West Street The Seyon Group The Seyon Group $38,500,000 $38,500,000 35 ,469

Property City/Submarket City/Submarket Buyer

Norwood Alexandria Real Estate Equities Alexandria Real Estate Equities 87,250,000 $

City/Submarket Mansfield Buyer

Buyer Price

Buyer Price Price Total SF Price/SF Cap Rate Total SF Price/SF Cap Rate

Price

87,250,000 $ 2 0,430

Total SF Price/SF Cap Rate

MEDIAN $/SF 200,430 $435 $435 7. 0% 7.30% $95

350,469 $110

SALES VOLUME ($)

NUMBER OF TRANSACTIONS

TOTAL SF

MEDIAN CAP RATE

$110

$477,935,956

111

3,955,082

6.7%

Sales Volume

Sales Volume SALES VOLUME

$700

TRENDS • Industrial is the new darling of commercial real estate investors both locally and nationally. Record-low vacancies and skyrocketing rents have led to unprecedented levels of activity in Boston’s industrial market in recent years.While sales volume in other asset types has been waning recently, industrial transactions have held steady. More than $900 million in industrial assets changed hands during the first half of 2018, which is on a par with peak-2016 levels as well as last year’s levels. Pricing continues to climb as well, with the median price per square foot reaching $95 in the second quarter.This represents a 5.8% increase from year- ago levels and a 44% increase over the last five years. • Several industrial portfolios traded during the second quarter, with private buyers accounting for 58% of total transaction volume. Jumbo Capital Management purchased the 8-building Xchange at Bedford, anchored by iRobot, for $107.8 million or $223/SF. Rafi Properties acquired the Ames Business Park in Somerville, which included five properties and a small parcel of land, for $88 million or $344/SF. SIP Trust sold a five-property portfolio on Stergis Way in Dedham to the Nordblom Company for $12.6 million or $133/SF. • Flex/R&D properties accounted for more than 60% of the total industrial sales volume in the second quarter.The transactions were evenly dispersed throughout the region, with the sale of the Xchange at Bedford and the Ames Business Park accounting for a large share of this activity. Pricing remains frothy for Flex/R&D properties in Greater Boston, with the median cap rates declining to 6.9% in the first half of 2018. Comparatively, median cap rates for this asset class were close to 10% nearly a decade ago.

$700

$600

$500

$400

$ (Mls)

$300

$ (Mls)

$300

$200

$100

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Price/SF Median Price/SF MEDIAN PRICE/SF

$105

$95

$85

$81

$75

$85

$81

$65

$75

$55

$65

$45

$55

$35

$45

$25

$35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$25

TOP Q2 / INVESTMENT SALES

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

INDUSTRIAL SALES

Q1 2017

Q2 2017

Q3 2017

Q4 2017

TOTAL

SALES VOLUME ($) Former Reebok HQ Canton The Xchange at Bedford Bedf rd

$374,173,554 560 West Street Mansfield

$453,379,723 Ames Business Park Somerville

00 Upland Drive Norwood

$385,172,081

$433,947,886

$1,646,673,244

# OF TRANSACTIONS

296

Spear Street Capital Jumbo Capital Management LLC 107,750, 0 $88,000,000

4,045,511 Alexandria Real Estate Equities

TOTAL SF

4,779,432

6,394,205

4,243,774

19,462,922

Buyer

The Seyon Group

Buyer

Rafi Properties

MEDIAN $/SF

$75

$59

$103

$86

$90

Price

$87,250,000

Price

$38,500,000

Price

$88,000,000

Total SF

680,000 4 2 662

Total SF

200,430

Total SF

350,469

Total SF

255,795

Price/SF

$129

Price/SF

$435

Price/SF

$110

2 3

Price/SF

$344

Cap Rate

- 6.50%

Cap Rate

7.30%

Cap Rate

M E T R O

B O S T O N

INDUSTRIAL RE CAP

2018

TOTAL INVENTORY (SF)

UNDER CONSTRUCTION (SF)

DIRECT VACANT (SF)

SUBLEASE VACANT (SF)

TOTAL VACANCY RATE

Q2 NET ABSORPTION (SF)

YTD NET ABSORPTION (SF)

ASKING RENT NNN ($/SF)

Urban Core

18,652,206

170,000

1,186,247

6.4%

(6,337)

27,157

$15.85

Framingham-Natick

3,206,322

180,654

5.6%

2,335

(13,126)

$8.20

Route 128 North

28,835,002

1,658,282

121,228

6.2%

2,036

14,600

$9.54

Route 128 Northwest

3,909,761

189,605

29,776

5.6%

(3,788)

(8,115)

$19.42

Route 128 South

39,594,031

300,000

2,953,669

25,740

7.5%

(73,806)

(61,929)

$6.94

Route 128 West

4,350,925

264,068

6.1%

15,000

(44,106)

$21.79

ROUTE 128 TOTAL

76,689,719

300,000

5,065,624

176,744

6.8%

(60,558)

(99,550)

$9.03

Route 495 North

20,972,963

383,000

2,393,684

47,376

11.6%

69,948

147,917

$9.62

Route 495 Northeast

13,538,580

225,000

1,479,552

104,614

11.7%

91,415

110,741

$8.33

Route 495 South

32,556,010

959,500

2,385,749

6,100

7.3%

(38,159)

331,880

$6.24

Route 495 West

15,173,226

220,106

523,243

74,343

3.9%

81,597

251,618

$8.70

ROUTE 495 TOTAL

82,240,779

1,787,606

6,782,228

232,433

8.5%

204,801

842,156

$8.08

MARKET TOTAL

180,789,026

2,257,606

13,214,753

409,177

7.5%

140,241

756,637

$9.14

METHODOLOGY SOURCE: Co-Star, NAI Hunneman Commercial Company. PREPARED: June 2018.

DISCLAIMER: The above data is from sources deemed to be generally reliable, but no warranty is made as to the accuracy of the data nor its usefulness for any particular purpose. Average Rental Rates are asking rents on direct space. Vacant space includes both direct and sublease space.

LIZ BERTHELETTE | Director of Research 617.457.3306 | lberthelette@naihunneman.com

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