Industrial Market


Vacancies expanded slightly for the second consecutive quarter in the Boston Industrial market in Q2 2023. Speculative deliveries pressured occupancies, with large blocks of space still available in several newly delivered properties. Supply pressures will continue in the near term, with the pipeline near record levels. Nearly 14 million SF is under construction across Eastern and Central Massachusetts, including more than 11 million SF of warehouse space. Several of the largest projects underway are built-to-suits, including four future Amazon locations, but about one-third of under construction space is still available for lease. New developments have attracted plenty of leasing volume in recent quarters, including several of the largest deals of Q2 2023.

Vacancies increased last quarter from 4.1% to 4.3% in the warehouse segment and from 5.1% to 5.4% in the flex segment. Demand is on its slowest pace in four years, with net absorption totaling about 200,000 SF last quarter and roughly 375,000 SF in the first half of 2023. The flex segment has underperformed the overall market, recording slight negative absorption last quarter. The sublet rate held mostly steady, increasing from 1.1% to 1.2%, and declined in the flex segment, while increasing in the warehouse market. Despite marginal softening of fundamentals, occupancies and rent growth remain well above historical averages. Rents increased by 5%-6% in both the warehouse and flex segments in the first half of 2023. If this pace is maintained rent growth will exceed 10% for the second straight year in the flex segment and the third straight year in warehouses.


The industrial sector has cooled slightly in 2023, but remains in much stronger position than most commercial real estate sectors. Rising interest rates and inflation have weighed on institutional investment, while also impacting retail spending and thus industrial tenants’ appetite for distribution space. As the economy phases out of the pandemic-era, e-commerce growth has not sustained its levels from 2020-21. VC funding for biotech has also fallen from pandemic-era highs, which has impacted the growth of life sciences companies in their search for both lab and GMP/biomanufacturing space. Despite these headwinds, the Greater Boston industrial market is well positioned for long-term growth. Online sales as a percentage of total retail sales in the U.S. still trail that of many other industrialized nations, suggesting room for continued growth. Biotech VC investment is still strong compared with historical averages, even with a drop-off from the peak of the early Covid years. President Biden’s executive order from the second half of last year also earmarked more than $2 billion across several departments to support domestic biotechnology and biomanufacturing, and the local life sciences industry is increasingly focused on keeping production local. These factors should generate plenty of future demand for warehouse and GMP space.