Industrial demand heats up in MetroWest
Edd Cote
Scott Hughes, president of New Dover Associates, Inc. of Framingham, who sells industrial parks in MetroWest.
This spring, Scott Hughes sold two properties in the Natick Business Park within weeks of each other for $3.9 million a piece. These back-to-back sales are indicative of a MetroWest market for industrial properties that has seen rising rents and lower vacancy in the face of increased demand.
Those properties were purchased as owner-occupied buildings, not investment properties, with the owners recognizing the value of not having to continue to pay rent to someone else and taking advantage of continued low interest rates, said Hughes who is the president of New Dover Associates, Inc. of Framingham.
“These are companies that know they have a finite amount of space needs, and they want to be in a given location, and they want to buy,” he said. “In the past, it was investors and users, but as the prices go up, there are more users than investors in that park.”
Hughes said the Natick park is in higher demand because it also supports a thriving retail-facing business environment, but the industrial warehouse and flex market is heating up throughout the region.
In the latest report from Transwestern covering the first quarter of 2016’s Boston industrial market, the rents for manufacturing properties along Interstate 495 have increased by 7 percent since the last quarter, with the I-495 West leading the way with an average rate per square foot of $10.64 and a 5.9 percent vacancy rate.
Warehouse space asking price was up 9.7 percent for the 495 region, according to Transwestern, which also reported that while overall warehouse vacancy for the region was at 9.9 percent, high-bay vacancy was down to 7.2 percent.
Driving the business
There are multiple factors driving this added activity in the region, according to realtors.
First, there is the ongoing pricing increase in Boston and the Route 128 corridor, as well as a push in Boston to put industrial property to residential or public space use.
Yet, not everything in Massachusetts is about Boston, with the increase in rents in MetroWest reflecting an interest in being at a transportation hub for the state and in the burgeoning biotech market.
“It’s companies getting pushed west, and it’s people operating companies out in this area who don’t want to commute into Boston … I’ve been doing this for 14.5 years, and I’ve never seen it this good,” said Bret O’Brien, who explained that Route 495 industrial properties demanding $7.50 a square foot a year ago are now hitting $10.
Adding to the competition is that the stock of these buildings is limited, said O’Brien, who is the president of Greater Boston Commercial Properties, Inc. There are only a handful of industrial parks in the region and many business owners prefer to be within an industrial park rather than in a stand-alone industrial buildings.
Much of the stock officially on the books is also antiquated, O’Brien said, meaning that the market is more constrained than it might otherwise appear when just looking at vacancy rates.
“Those mill buildings and multi-story industrial buildings are completely functionally obsolete,” he said of the wood-beam construction used throughout the 20th century often turned into apartments or offices.
The right property
What was once the standard for warehouse and manufacturing space has changed, with manufacturers wanting high ceilings to stack products, easy access through multiple loading bays and load-bearing floors that can take the punishment.
If you’ve got the right amenities, then you’re in business. If not, people will just move on, said developer and entrepreneur Steven Rothschild. Before he announced he would build the Armory Business Center, a collection of nine units at 1,867 square feet in the South Worcester Industrial Park, he did his homework and came up with a amenity list that included the items above.
Size is also a big factor when it comes to the desirability of a building, said O’Brien, with anything under 6,000 square feet going extremely quickly.
Rothschild said, in doing his market research, there was a huge demand for these type of buildings that allow businesses like a recent startup to grow into a full-on manufacturing space.
“Today, the footprint for many type of manufacturing is much smaller,” Rothschild said, explaining many of these productions add something to a product and quickly move them out to the next processing point. “That’s a lot of production in a small square footage.”
The right location
It isn’t just layout that draws people to the region, but it’s the accessibility.
According to Transwestern’s director of research, Chase Bourdelaise, the Greater Boston area and New England in general are hub locations for shipping and manufacturing. The importance of regional warehouses is also growing as ecommerce puts heightened demands on having stock on hand for quick deliveries.
“Warehouse and manufacturing for sure are being driven by ecommerce. Ecommerce is growing at a rate of 20 percent a year, and they expect that ecommerce sales will account for 12 percent of total retail sales by 2020,” Bourdelaise said.
Michael Sleeper, the CEO of Worcester’s Imperial Distributors, agrees with the assessment. His company is having a 300,000-square-foot warehouse and office property with 40 foot ceilings built on the outskirts of Worcester at 150 Blackstone River Road. The creation of this facility became a necessity after no buildings in the region fit his needs.
Due to the ease of transportation to major thoroughfares, there is easy access to Route 146 and the Mass Pike from the new location, and with his desire to remain in the Worcester area, this was the best choice for the company, he said.
“Investing into the future is largely done in the facility,” Sleeper said. “If you’re really committed to the future, you want to be up to speed in terms of facility. It’s a critical piece.”
Future constraints
While all this activity is good for business now, it could be bad for business later, said O’Brien, who was concerned about suitable industrial space drying up before new properties can come online. There are not a lot of industrial projects in MetroWest.
Bourdelaise said the inventory with the ceiling height and other requirements manufacturers and shippers are looking for are actually very limited.
The rental rates for industrial are bordering on justifying new construction, but not quite yet, O’Brien said.
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