Warehouse & Flex

The first quarter of 2021 was another strong period for the industrial property type. E-commerce sales maintained their post- COVID-19 momentum and finished near record-high levels. Surging levels of online sales kept demand for warehouse and distribution space strong from e-commerce users. Unlike other property types, employee occupancy in industrial buildings has generally remained high throughout the pandemic. Many industrial employees are essential workers, and social distancing is easier to practice with industrial’s higher square footage per employee. Unlike 2020, 2021 has brought tenants out to tour and lease in the market beyond Amazon. Amazon took up an inordinate amount of the demand in 2020 but now many of the largest leases are from other industrial users. The return of a diversity of leasing bodes well for the market going forward.

Mirroring these broader macro trends, the industrial market in Boston remains record tight. General industrial leasing activity surged higher than before the pandemic, driving 2.5 million square feet of annual net absorption. Vacancies at 3.6% are even lower than the records set in the previous quarter. While flex had slightly negative annual absorption, current demand is similar to what the market had pre-COVID. Warehouse development has begun to increase as strong rent growth has enticed developers to move forward on construction projects. The investment sales market returned to earth after a record-breaking Q4 2020. Still, investor interest remains high, and opportunities are either limited or extremely pricey. This had led investors to look down the risk spectrum to flex assets or opportunities outside of the metro area.

Looking Forward

Given that e-commerce companies rank among the largest drivers of industrial demand, online sales numbers bode watching. E-commerce sales over the past decade have typically grown annually at 10 to 15%, high figures but well below the 30% or more growth post-pandemic. It remains unclear how much further e-commerce sales will grow as the nation recovers from this crisis. If e-commerce sales revert to the growth rate of 2010-2019, look for demand to be good. If post-pandemic e-commerce growth is sustained, look for demand to be great.