Industrial Development Slows in Greater Boston in Q2

As the industrial boom spurred by the pandemic slows down, logistics companies near major transportation hubs in Greater Boston are struggling to find space. The industrial market in Boston is experiencing lower vacancy rates and higher rents, driven by land constraints and the demand for proximity to key locations like Boston Logan International Airport.

Vacancy Rates and Rent Surge

According to CBRE, Boston's urban submarket had an availability rate of 5.8% in the second quarter, compared to the Greater Boston average of 8.2%. Additionally, rents in Boston have skyrocketed to $27.34 per square foot, much higher than the regional average of $15.24 per square foot. The limited availability of developable land continues to push rents higher.

Prime Location Near Logan Airport

At the Bisnow Boston Industrial and Logistics Summit, developers emphasized that proximity to Logan Airport is a major factor for logistics companies. Chelsea Point, a project by Hines located only 2.5 miles from the airport, was highlighted as a prime location for tenants focused on fast and efficient transport of goods. Developers believe location is the main driver of demand in Boston’s urban core.

Industrial Projects and Redevelopment

Hines began work on a 146,000-square-foot project at 250 Marginal Street in June 2023, having purchased the site for $68 million in 2022. Although not typically suited for Barrett Distribution Centers, its location near the airport gives it a significant edge for distributors.

Airport Activity on the Rise

Boston Logan Airport's importance for logistics is underscored by the increase in freight and passenger activity. By July, 22 million pounds of freight had passed through the airport, marking a 17% rise from the previous year. The airport also handled 4 million passengers that same month, further contributing to demand for nearby industrial space.

Increasing Demand for Urban Industrial Space

Urban industrial spaces around the airport are facing growing pressures as life sciences and mixed-use developments take over previously industrial zones like Kendall Square and the Seaport. Developers are forced to make compromises in order to make urban industrial projects financially viable due to the scarcity of land and high development costs.

High Costs and Scarcity of Land

The shortage of industrial land, especially around Logan Airport, has made Boston one of the most expensive areas for site development. Developers like Oliver Street Capital, which owns several properties near the airport, emphasize the challenge of finding greenfield sites, prompting them to focus on repurposing existing properties for industrial use.

Efforts to Preserve Industrial Space

To address the dwindling availability of industrial land, the city has taken steps to preserve key industrial zones. In 2023, Boston’s city planning department updated the zoning guidelines for the Newmarket neighborhood, a hub for industrial manufacturing and distribution, aiming to protect its industrial character while encouraging new development opportunities.

Refocusing on Real Estate Fundamentals

As demand normalizes post-pandemic, developers are turning back to real estate fundamentals. These include ensuring proximity to highways, ample loading areas, and sufficient truck ports, which had been overlooked during the industrial market frenzy of the past few years. Developers are now prioritizing functionality to meet the long-term needs of tenants.