Industrial Market

The Boston Industrial Market continued to strengthen in Q1 2022. Vacancies in the warehouse and flex/R&D segments each declined to record lows, while strong rent growth continued across the board. Net absorption was about 350,000 SF last quarter, pushing 12-month net absorption up to roughly 2.5 million SF. The demand drivers for the industrial market will continue to be strong over the near term but the shrinking amount of available space is starting to limit leasing activity. Developers are responding to tight occupancies; however, and a record amount of construction is in the pipeline, most of which are build-to-suit projects. Rents have boomed during the pandemic. Warehouse rents increased by 10% last year and 4% in Q1 2022, while flex rents increased by 3% and 5%, respectively. Investment slowed compared with last year’s record-setting pace, but pricing remains strong, topping $200/SF on select top deals.

The industrial market finds itself in a sturdier position than the office and retail markets, and is well-suited for changes brought on by the pandemic. These industries were on the upswing before the pandemic, but have grown at an even faster trajectory during the covid-era. Social distancing measures have spurred an uptick in online shopping, and e-commerce sales increased by 40% during the first year of the pandemic. Although this growth rate has since fallen closer to its pre-pandemic average of about 10%-15% year-over-year, the market is still growing rapidly, prompting retailers to expand their warehouse and distribution footprints. VC funding for the biotech industry smashed its previous record last year, and growing companies are requiring GMP/manufacturing space in addition to lab space.

Looking Forward

A few macroeconomic hiccups have occurred early in 2022, such as supply chain bottlenecks and a slowing biotech IPO market. But these issues aren’t an indication of any fundamental concerns in the local market, which continued to thrive in Q1 2022. The rapid growth of the e-commerce and life sciences sectors continues to support growth. Despite the rapid growth of recent years, online shopping still accounts for a smaller share of total retail sales in the U.S. compared with other industrialized nations, meaning there should be plenty of more room for further liftoff. VC funding for biotech has continued at a rapid pace in 2022, despite the slowdown in the IPO market. As this influx of investment boosts the R&D capabilities of many local firms, companies will also require additional biomanufacturing and GMP space.