Industrial Market

Q2 2022 INDUSTRIAL MARKET OVERVIEW
GREATER BOSTON

The Boston Industrial Market continued to thrive in Q2 2022. Vacancies declined to a record low of 3.4%, as net absorption topped 1.3 million SF and more than tripled its total from Q1 2022. New construction has boosted demand, especially in the warehouse segment, where one of the largest move-ins occurred at Home Depot’s new 715,000 SF distribution facility in Tewksbury. Rent growth in the first half of the year dwarfed its total from the last five years, which was already a period of record rent increases. Rents accelerated by more than 10% over the last two quarters in both the warehouse and flex segments. Developers are responding to the lack of available modern space, and construction is at its highest level in several decades. More than 8 million SF is under construction across the metro, which is nearly quadruple the size of the pipeline from a year ago. 

Despite strong absorption, the industrial market’s primary demand drivers are encountering new challenges in 2022. E-commerce and manufacturing companies are contending with global supply chain disruptions and inflation-driven pressures on consumer spending, while biotech is affected by struggling public markets and thousands of local layoffs. Although pessimistic headlines are increasingly common, tenants in these sectors continued to drive a large share of demand last quarter. E-commerce sales and biotech funding smashed previous growth rates across 2020-21, and are still at or exceeding typical pre-pandemic levels in 2022. Throughout the pandemic online retailers and biotech companies have expanded their industrial footprints at an unprecedented pace in order to meet surging demand, so some level of cooling off is not surprising. 

LOOKING FORWARD

Despite rebounding in June, retail sales have mostly underwhelmed in 2022, and the country’s premier online retailer is adjusting expectations. Amazon announced in Q2 that it will scale back its logistics footprint by 10-30 million SF, after recording its first quarterly loss since 2015 in Q1. For now, it doesn’t appear that Amazon will list any of its Massachusetts properties, but this decision is still discouraging. The e-commerce giant was the engine for the explosive growth that occurred in the local and national warehouse markets over the last half-decade plus. But even if the company ends up listing any of its Massachusetts locations, the space may not last long without a new tenant, given the market’s record-low vacancies. Overall e-commerce should also have plenty of room for continued liftoff in the long-run, and online shopping could be less affected than brick-and-mortar sales by a potential recession. E-commerce sales as a percentage of total retail sales in the U.S. still trails that of many other industrialized nations, and online shopping generally offers cheaper prices than in-person retail.