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©2011 Grubb & Ellis Company

Industrial Trends Report—Third Quarter 2011

Boston, MA

Industrial Trends Report—Third Q uarter 2011 Boston, MA Vacancy & Availability Rates 25% 20% 15% 10%
Vacancy & Availability Rates 25% 20% 15% 10%
Vacancy & Availability Rates
25%
20%
15%
10%
3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 Vacancy Availability Completions vs. Absorption
3Q 09
1Q 10
3Q 10
1Q 11
3Q 11
Vacancy
Availability
Completions vs. Absorption
(in Thousands of SF)
1,200
800
400
0
-400
-800
-1,200
3Q 09
1Q 10
3Q 10
1Q 11
3Q 11
Absorbed
Completed

Asking Rental Rates

($/SF/Yr./Triple Net) $11 $9 $7 $5 3Q 09 1Q 10 3Q 10 1Q 11 3Q
($/SF/Yr./Triple Net)
$11
$9
$7
$5
3Q 09
1Q 10
3Q 10
1Q 11
3Q 11
General Industrial
R&D/Flex
Warehouse/Dist.

Industrial Momentum Curbed

Advancement toward industrial market stability in Greater Boston abruptly came to a halt during the third quarter as tenants moved out of more space than they filled for the first time since the start of 2010. The 354,000 square feet of negative net absorption recorded represents a loss of over one third of the gains in occupancy experienced through the first two quarters of the year. The vacancy rate increased accordingly, rising 20 basis points to 13.7 percent - the first increase in five quarters. Negotiation momentum shifted further in tenants’ favor as average asking rates, already standing at comparatively low levels, fell across all prod- uct types. Average asking rental rates for general industrial product saw the most significant drop, falling two percent to $7.04 per square foot, triple net – the lowest level since 2007.

Several substantial corporate consolidations and relocations in the North and South submarkets induced the market retraction. The most substantial tenant move-out took place in the South, where the Boston Apparel group vacated 618,000 square feet of warehouse space at 35 United Drive in West Bridgewater after laying off 300 employees. In the North, Johnny Appleseed’s moved operations to Pennsylvania leaving 180,000 square feet of general industrial space at 39 Tozer Road in Beverly.

Although industrial leasing fundamentals in the overall market weakened during the quarter, certain segments showed signs of strength. One particular bright spot was the West submarket, where tenants absorbed 241,000 square feet – the only submarket to post positive absorption. Quiet Logistics, a two-year-old company that uses robots to

fulfill orders for e-tailers, took occupancy of 200,000 square feet of distribution space at

66 Saratoga Boulevard in the Devens Industrial Park. The move - motivated by access to a

highly qualified labor force in the immediate area and the ability to expand its footprint

at the park- brought 300 much needed jobs to the area. The R&D/Flex segment also experienced an improvement during the third quarter. Benefitting from space demands

amongst local world-class technology companies, the R&D/Flex market posted its fifth consecutive quarter of positive net absorption as tenants filled 94,000 net square feet. One technology company aiding this trend is venture-backed nanotechnology firm QD Vision, relocating and expanding from 25,000 square feet in Watertown into 60,000 square feet at

29 Hartwell Avenue in Lexington.

Just as the industrial leasing market saw its fair share of set-backs, so did the investment sales market. Buyers stuck to the sidelines as sale transaction velocity retreated from levels seen earlier in the year. The $56.7 million in closed third quarter transactions stands 16.9 percent lower than the second quarter total of $68.2 million and 36 percent less than the first quarter level of $88.6 million. (continued on next page)

FoRecasT

n

Lease rates will remain low as landlords offer attractive rental rates to entice tenants.

n

LEED certified and green buildings will remain favorable for future-oriented investors.

n

The recent retreat by CMBS lenders could jeopardize growth in the investment market.

n

While physical location remains key for many users of industrial space, some companies will consider location alternatives based on other factors such as lower property taxes and city incentives in efforts to contain costs.

Grubb & Ellis Boston 470 Atlantic Avenue, 11th Floor Boston, MA 02210 www.grubb-ellis.com

Prepared by:

Tim Van Noord Senior Research Analyst 617.772.7275 • tim.vannoord@grubb-ellis.com

©2011 Grubb & Ellis Company

Industrial Trends Report—Third Quarter 2011

Boston, MA

Industrial Trends Report—Third Q uarter 2011 Boston, MA   NET ABsorpTIoN Under AskING rENT By
 

NET ABsorpTIoN

Under

AskING rENT

By submarket

Total sF

Vacant sF

Vacant %

Available %

Current

Year To Date

Construction sF

WH/Dist

r&D/Flex

Central

34,210,092

4,523,428

13.2%

17.8%

(4,592)

292,362

-

$7.99

$11.84

North

86,300,220

11,367,364

13.2%

20.7%

(82,775)

506,864

-

$5.51

$10.05

South

73,060,474

10,555,272

14.4%

20.4%

(507,890)

(244,507)

117,200

$4.79

$8.85

West

48,665,914

6,715,360

13.8%

20.6%

240,772

22,645

145,000

$5.49

$9.48

Totals

242,236,700

33,161,424

13.7%

20.2%

(354,485)

577,364

262,200

$5.49

$9.90

By property Type

AskING rENT

General Industrial

71,099,396

8,937,589

12.6%

18.7%

(259,988)

104,687

-

$7.04

R&D/Flex

70,282,031

9,675,340

13.8%

20.4%

94,421

561,716

145,000

$9.90

Warehouse/Distribution

100,855,273

14,548,495

14.4%

21.1%

(188,918)

(89,039)

117,200

$5.49

Totals

242,236,700

33,161,424

13.7%

20.2%

(354,485)

577,364

262,200

$7.16

(continued from previous page) Four of the five third-quarter acquisitions contained a warehouse/distribution component, suppressing prices as well-capitalized investors such as STAG Industrial REIT and Atlantic Management drove the market. For example, Atlantic Management purchased the former HP campus in Marlborough for $8.7 million. This 109-acre, 750,000-square-foot campus traded hands for $11.60 per square foot and represents Boston’s largest industrial sale of the year in terms of square footage and the smallest sale of the year in terms of price per square foot.

The underwhelming third quarter industrial market news comes as the total number of jobs in the Massachusetts economy was off by 2,800 during August. The decline slows a recovery in which Massachusetts employers have added 48,000 jobs since August 2010. Furthermore, the Associated Industries of Massachusetts Business Confidence Index fell in August into negative territory on its 100-point scale for the first time since September 2010 as employers grew fearful of possible effects resulting from global and domestic economic recessions. While these indicators signal a potential commercial real estate slow down in coming quarters, the current market holds a plethora of strategic opportunities for buyers and tenants seeking to take advantage of cyclically repressed pricing.

Amesbury Salisbury Merrimac Newburyport West Newbury 95 Haverhill Newbury Groveland Metheun Georgetown Rowley
Amesbury Salisbury
Merrimac
Newburyport
West Newbury
95
Haverhill
Newbury
Groveland
Metheun
Georgetown
Rowley
North Andover
Lawrence
Ipswich
Dracut
Tyngsborough
Boxford
495 Andover
Rockport
N Topsfield
Lowell
Hamilton
Essex
Gloucester
Tewksbury
Chelmsford
Wenham
93 Middleton
Manchester-by-the-sea
Westford
North Reading
Danvers Beverley
Billerica
Wilmington
Lynnfield
Littleton
Peabody
Carlisle
Reading
Salem
Harvard
Burlington
Boxborough
Wakefield
Bedford
Marblehead
Acton
Stoneham
Swampscott
495
Woburn
Saugus
Lynn
95
Concord
Melrose
Lexington Winchester
Stow
Bolton
Maynard
Lincoln
Medford Malden
Nahant
Everett Revere
Arlington
128
Somerville
Hudson
Belmont
Berlin
Weston Waltham
Sudbury
Cambridge
Watertown
Wayland
C
Brighton
Marlborough
Newton
Brookline
90
93
Framingham
Chestnut Hill
Northborough Southborough
Wellesley
Jamaica Plain
Dorchester
Natick
Needham
W
Hyde Park
Westborough
Ashland
128
Milton
Q
uincy
Cohasset
Sherbon
Dedham
Hopkinton
Dover Westwood
Hingham
Braintree
Scituate
Holliston
93
Medfield
495 Norwood
Randolph
Weymouth
Millis
Canton
3
Norwell
95
Holbrook
Medway
Walpole
Milford
Avon
Rockland
Stoughton
Norfolk
Hanover
Abington
Sharon
Marshfield
Franklin
S Brockton
Whitman
Pembroke
Bellingham
Hanson
Wrentham
Foxboro
Duxbury
East Bridgewater
Easton
Mansfield
Plainville
West Bridgewater
Halifax
Kingston
North Attleboro
Bridgewater
Norton
495 Plympton
295
Middleborough
Raynham
Attleboro
Taunton
Industrial Submarkets
C Central
Lakeville
S South
N North
W
West

INDUsTRIaL TeRms aND DeFINITIoNs

Grubb & ellis—Boston Real estate Professionals

North 128 Bradford A. spencer

Central 128 Tom Aitken

Senior Vice President

Senior Vice President

617.772.7215

617.772.7202

bradford.spencer@grubb-ellis.com

tom.aitken@grubb-ellis.com

south 128

Metro West

Lance Carlton

Hank Amabile

Associate Vice President

Senior Vice President

617.772.7213

617.772.7207

lance.carlton@grubb-ellis.com

hank.amabile@grubb-ellis.com

Investment

Anthony W. Biette Vice President

617.772.7205

anthony.biette@grubb-ellis.com

Total SF: Industrial inventory includes all multi-tenant, single tenant and owner occupied buildings at least 10,000 square feet.

Industrial Buildings Classifications: Industrial buildings are catego- rized as warehouse/distribution, general industrial, R&D/flex and incubator based on their physical characteristics including percent office build-out, clear height, typical bay depth, typical suite size, type of loading and typical uses.

Vacancy and Availability: The vacancy rate is the amount of physi- cally vacant space divided by the inventory and includes direct and

sublease vacant. The availability rate is the amount of space available for lease divided by the inventory.

Net Absorption: The net change in physically occupied space over a period of time.

Asking Rent: The dollar amount asked by landlords for available space expressed in dollars per square foot per year in most parts of the country, and dollars per square foot per month in areas of California and selected other markets. Industrial rents are expressed as triple net where all costs including, but not limited to, real estate taxes, insurance

and common area maintenance are borne by the tenant on a pro rata basis. The asking rent for each building in the market is weighed by the amount of available space in the building.

* Grubb & Ellis statistics are audited annually and may result in revi- sions to previously reported quarterly and final year-end figures.

Reproduction in whole or part is permitted only with the written consent of Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been indepen- dently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.