The Boston industrial market posted an exceptionally strong fourth quarter as the market expanded by 900,000 square feet of new absorption,the largest single gain in occupancy since the second quarter of 2005.
Since that time, occupancy levels have trended downward until recent gains in the past two quarters of 2006 returned the amount of occupied space back to mid-2005 levels.
The jump in fourth quarter absorption was largely due to new lease activity in the south and north submarkets, and a number of transactions in the warehouse/distribution sector.
Vacancy throughout the Boston metro area now stands at 13.4% and average asking rents have risen to $7.96 per square foot, an increase of 12 cents since the third quarter.
The manufacturing sector in the Boston area has received welcome relief lately in the form of lower energy prices.
The Bureau of Labor Statistics reports costs of oil and natural gas in the New England area have fallen by 28% and 6%, respectively, from the same period last year. Electricity rates have held steady throughout the fourth quarter after a string of recent increases. Unusually warm weather has reduced the dependency on energy for heating and temperature control.
Transactions still are common for institutional quality buildings with prices ranging from $70 to $80 per square foot at the upper end of the scale.
Obsolete buildings are being removed and converted into retail or mixed-use facilities, or renovated to suit the needs of current requirements.
Sectors
The general industrial sector wrapped up a strong year by posting a modest gain of 104,000 square feet in the fourth quarter.
The sector’s asking rents across all submarkets jumped significantly as a result of the accumulated activity of the previous three quarters.
Average asking rents now are $7.75 per square foot, up 20 cents since September. The bulk of the gain for general industrial was enclosed within the north submarket based on deals such as Draper Laboratory’s move to Wilmington.
The research and development/flex sector rebounded from a loss in the third quarter with a slight gain of 84,000 square feet of absorption. This addition places the year’s total gain up to nearly 300,000 square feet.
Research and development/flex buildings account for the highest vacancy rate in the market at 18.5%. As research and development/flex buildings are removed because of conversions into other types of space, vacancy in this sector will drop accordingly.
The story of the fourth quarter was the level of transaction activity in the warehouse/distribution sector. This sector totaled 680,000 square feet of absorption, of which 500,000 originated in the south submarket.
2006 closed on a positive note for the Chicagoland industrial market.
Vacancy rates held strong and have steadily dropped to a rate not seen in this market since the fourth quarter of 2000.
Overall vacancy now stands at 8.2%. Eleven of the 18 markets reported a decline in vacancy rates from the third to the fourth quarter.
Meanwhile, the U.S. economy held firm but economists are concerned with rising fuel costs coupled with fluctuating consumer spending habits.
An increase in fuel costs placed some strain on manufacturing operations.
Economists see looming threats of increasing energy costs in the years ahead, although the price of crude dropped in the fourth quarter. That eased some immediate concern.
The Miami-Dade industrial market is tight with only 3.8% vacancy at year’s end.
Although edging up 30 basis points from the prior quarter, it is a drop of nearly a full percentage point from 4.7% vacancy at the end of 2005.
Negative absorption of 247,261 square feet in the fourth quarter brought the total square feet absorbed during the year to 1.8 million square feet of black ink.
All but one submarket, Miami Lakes, ended the year with a sub-5% vacancy. The total industrial square footage under construction at the end of 2006 in Miami-Dade was 2.2 million square feet, relatively unchanged from the prior quarter, but almost doubling the amount under construction a year ago.
After three successive quarters of significant asking rent increases, Miami-Dade’s fourth quarter average asking rent remained relatively unchanged from the prior quarter at $7.
Last year’s average asking rent of $10.35 for research and development/flex space and $6.86 for warehouse/distribution space represent a significant annual increase.
The average asking rent for research and development/flex shot up nearly 24% from $8.37 and warehouse/distribution jumped nearly 16% from $5.94 in the fourth quarter of 2005.
The fourth quarter was a mirror image of the previous nine months. Minimal absorption combined with the previous three quarters resulted in a year-end figure of slightly less than 1 million square feet being absorbed.
The good news is that occupancy levels remained at a respectable 92% and despite some major manufacturing related plant closings during the year, the overall market showed gains.
The most promising aspects of the fourth quarter involved numerous large scale transactions and several announcements of new projects throughout Pittsburgh and the entire western Pennsylvania region.
In Westmoreland County, the former 470,000-square-foot American Video Glass Plant was sold to an Ethanol production company; the former 280,000-square-foot Sony warehouse was sold to DeLallo Foods for its regional distribution center; and lastly, the former 650,000-square-foot Supervalu distribution center in Belle Vernon was acquired by a local investor for conversion to a multi-tenant facility.
In Washington County, several parcels at Starpointe were sold and construction began on a flex building.
In Beaver County, a speculative 410,000-square-foot warehouse distribution facility broke ground, with an expected completion date of this summer. This is the largest speculative building in more than seven years.
Within Allegheny County, several premium speculative buildings were recently completed. These buildings coupled with a significant increase in late year activity should result in numerous transactions in early 2007.
