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Owner-Occupied Demand for Flex/Industrial Space Remains Strong in Greater Boston

Posted by Anne on May 23, 2023
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The office market may have come to a standstill, but demand for owner-occupied flex/industrial real estate remains strong in Greater Boston. We also see strong industrial leasing demand, which continues to fuel new development demand as well.

R.W. Holmes’ first quarter report shows a growing discrepancy in the market between the continued success of industrial product and slowing office activity. The industrial market, however, continues to be the consistent backbone of Greater Boston’s market activity, and it is likely to remain so in the near for the balance of the decade.

Here is a quick snapshot of the Greater Boston industrial market:

  • We continue to see demand for industrial products, particularly with mid-market-sized companies and investors. In this size range, deals continue to be inked, and there is no sign of significant new construction for the remainder of 2023 to appease the continued demand from this size tenant.
  • An increase in flex deals happening in office buildings is likely to continue in 2023. The flex market is so tight that users are looking at office buildings with first-floor availability and loading dock access. While this is not a new trend, we expect to see an expansion in this area.
  • As industrial space continues to be in high demand with short supply available, this sector continues to be a hot commodity to buy. Despite over 1.3 million SF coming onto the 128 North/Rt. 3 North market in Q1, vacancy only moved slightly north, a sign that newer generation space is quick to lease once delivered, if not pre-leased.
  • Interest rates are not scaring off buyers from taking a run at industrial/flex property right now. User demand continues to be high, so ambitious underwriting is not disappearing. However, pricing has become a challenge as users and investors are getting very tight on where debt service falls and the current average rental rates.
  • Industrial tenants coming off leases are increasingly shifting to becoming buyers as they weigh the narrowing cost between rent and ownership in several submarkets.
  • There are several flex tenants in the market who need buildings with basic loading capabilities for either low-volume delivery or proximity-based service industry use that do not require the same clear height as a distribution and manufacturing tenant. As such, a repositioning of more strategically located office properties with existing or the ability to add loading to suit the needs of these users is something that could gain traction as well.
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