Where Do We Stand Now in the Greater Boston Industrial/Flex Market?
In 2021, the industrial market peaked with a historically low vacancy rate of just 3%, and rents shot up more than 30% in one year. Fast-forward to 2024, and the market is still strong, although there’s been a bit of a slowdown in demand for larger spaces over 200,000 square feet. However, there’s still a lot of activity for smaller spaces. Rents have leveled off, but with vacancy rates still at 5%, we don’t expect them to drop anytime soon.
Given these conditions—low vacancy rates and sustained asking rents—finding industrial space in Greater Boston can be somewhat competitive and a game of patience. If you’re looking for space, here are some key steps to consider:
Evaluate Your Real Estate Strategy:
Start Early: With low vacancy rates, good properties tend to get snapped up fast. That’s why we’re advising our clients to start their search for new space 12 to 18 months ahead of time. This way, you’ll better understand market rents and what’s available so you can act quickly when the right property comes up. In some cases, rents have doubled compared to what tenants are currently paying from their last lease negotiation, so getting a handle on the market early gives you time to budget for any rent increases or identify creative ways to save on costs. Additionally, supply chain issues, particularly with power supply components like transformers and switchgear, can significantly impact the timelines and budgets of industrial buildouts. Planning early can help mitigate these challenges.
Define Your Requirements: Clearly outline what you need in your space, considering things like power requirements, ceiling height, loading docks, location, and accessibility. Also, remember to consider specifics like column spacing, HVAC, truck parking, sprinkler systems, lighting, and any other features that are important for your operations.
Consider Location: While rental rates vary across the different submarkets in Greater Boston, some areas offer lower rents, which could help ease the financial burden if you’re open to moving to a different submarket. However, we’ve noticed that many of our clients are increasingly focusing on employee demographics and commute times when choosing a location—sometimes even more than the rental rates. Being closer to where your current or future employees live can reduce their commute, make hiring easier, and help with employee retention. In many cases, companies are no longer hiring talent from the same geography as they were pre-pandemic.
Other factors our industrial clients consider when choosing a location include highway accessibility, proximity to suppliers and stakeholders, and access to multiple company locations. These elements can be crucial when deciding on the best spot for your business.
Market Opportunities:
Buying vs. Leasing: Deciding whether to buy or lease a commercial property comes down to a few key factors. Buying can give you stability and a chance for the property’s value to increase, but it also means an upfront investment and ongoing maintenance. On the other hand, leasing offers more flexibility and doesn’t require as much money upfront. The choice really depends on your business’s financial situation, long-term plans, and whether you’re looking at immediate costs or thinking about future benefits.
Even with interest rates rising, many owner-occupants still find it makes sense to buy rather than lease, especially since rents are averaging over $15 NNN in Greater Boston. In some cases, the cost of a mortgage payment could actually be lower than the rent. However, there are limited options to buy in the market, so if buying is of interest, start the search process 18-24 months early to provide time to review options as they come available in the market.
Look for Long-Term Landlords: Over the past few years, many industrial properties in Greater Boston have changed hands, with new owners paying top dollar due to the low interest rates. Because they bought at such high prices, these owners often have less flexibility to lower their asking rents. On the other hand, properties that haven’t been sold recently usually have a lower cost basis, which means they might offer more room to negotiate on rent. Working with your broker to find long-term property owners could allow you to secure a space at a slightly lower rate than the market average.
Renew Your Existing Lease: With rents still close to their peak from 2021, many of our clients have found that renewing their current lease can be more budget-friendly than moving to a new place in the same area. Even though renewal rents might be higher than they were five or more years ago, they’re usually still lower than the current market rates. This is because landlords often prefer to keep their existing tenants to avoid any gaps in rent payments and save on extra costs.
If you’re thinking about renewing, it’s wise to have a broker on your side. They can help you negotiate a better rental rate, update any lease terms that might be too restrictive, and ensure you have plenty of flexibility. For instance, we’ve helped clients change lease terms so they didn’t have to cover big capital expenses, like replacing HVAC units or a building roof.
Work with a Broker: Unlike residential real estate, commercial real estate brokers are paid by the landlord. This means that you do not have to come out of pocket to utilize a broker to advise you on your next real estate transaction. They have the expertise to help you find the right space, negotiate good terms, analyze leases, plan your space, compare options and even find off market opportunities. More importantly, focus on utilizing a real estate advisory company, such as R.W. Holmes. Advisors focus on your long-term real estate needs, not just getting a deal signed today. R.W. Holmes is a third-generation, 50 year old company with many client relationships spanning over 30 years.
Have questions? Our seasoned team is 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.