How to Prepare for the 2024 in the Greater Boston Industrial Market
By Mike Ogasapian
It’s clear from the low vacancy rate and elevated asking rents in Greater Boston that finding industrial space can be quite competitive. To ensure you secure the right space for your needs, here are some key steps to consider:
Evaluate Your Real Estate Strategy
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Start Early: Low vacancy means a prospective space can be snapped up quickly depending on when a user enters the market. We advise our clients to begin their search for new space 12 to 18 months in advance to see the market firsthand and understand what the fundamentals are. In some cases market rent has doubled from what a user may be currently paying for their industrial space, so understanding the market early helps to prevent doubt based on uncertainty of today’s market fundamentals.
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Define Your Requirements: If you have not already, we highly suggest thoroughly evaluating space requirements, taking into account power needs, clear height, loading specifications, accessibility, and other features or amenities essential for your operations. Additionally, elements like column spacing, HVAC, truck parking/outdoor storage, and sprinkler systems should be accounted for. -
Consider Location: Each submarket of Greater Boston has different fundamentals and can meet different user needs as far as building quality, supply, and rate. A focus on employee demographics and commutes has been a growing factor for users when determining location. In some cases, it is more important to pay a higher rate in order to retain key employees. We have provided a zip code analysis of key employees and paired it with in-depth market evaluation across submarkets to identify the best target location for the search. This has led to cost savings of 15-30% for users who have determined the original market they were considering was not necessarily the best location.
Market Opportunities
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Buying vs. Leasing: Deciding between buying and leasing a commercial property involves considering several important aspects. Buying offers stability and potential for property appreciation but requires a significant initial investment and ongoing maintenance responsibilities. Leasing, while providing flexibility without the need for substantial upfront costs, might lack long-term stability (particularly in rents) and the financial advantages that come with property ownership. The choice depends on the business’s financial capacity, long-term goals, and the trade-offs between immediate costs and future benefits.
Despite the rise in interest rates, we are still seeing owner-occupant opportunities that justify buying rather than leasing due to historically high rents remaining in Greater Boston. Depending on the building, a mortgage payment is usually cheaper than rent in a given submarket.
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Identify Long-Term Landlords: In the past three years, much of the industrial market in Greater Boston has traded to institutional owners. These institutions paid high premiums for industrial properties during a period of low interest rates. This limits a Landlord’s ability to discount rental rates in an effort to transact. Alternatively, buildings that did not trade hands in the past three years have a lower basis and, therefore, can work with a prospective tenant to offer more friendly terms, particularly on rent. Working with your broker to identify long-term property owners who may be able to provide more flexibility on rents can be an opportunity to lease space slightly below market.
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Renew Your Existing Lease: As rents remain near peak pricing of 2021, many tenants have been able to renew at discounted rents compared to relocating elsewhere in their local market. Renewing in place is almost always the path of least resistance. Examining your current lease and comparing it to current market conditions before speaking with a current Landlord is the best strategy. In many instances, we have set our clients up for success by examining a tenant’s current lease to understand renewal provisions and providing a market analysis with recent lease comps and asking rates for similar space in the market. This puts tenants in the best position when negotiating a renewal as opposed to a reactionary approach when things do not go as expected.
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Work with a Tenant-Rep Broker: Tenant-rep brokers have the market expertise to assist you in your property search, negotiate favorable terms, analyze leases, help with space planning, provide comparative analysis, and access off-market opportunities. Relying on a broker comes at no cost to you (Landlord pays commissions), but you are provided with critical market knowledge and a real estate strategy that can greatly impact your bottom line and business opportunities.
Have questions? Our seasoned brokers are prepared to help you navigate these paths and make well-informed decisions. Get in touch with us today so we can help you optimize the potential of your property and prepare it for the future.