*The New England Investor- Digital Issue 04 | Page 5

Dramatic market tightening driving
industrial values up
Once upon a time, real estate assets used to be converted from industrial to higher-valued, more in-demand uses
like office and lab. Nowadays though, properties are being converted to industrial, as the demand for warehouse
space continues to increase. With vacancy at just 6.6%, the tightening of the market has driven rents to a 10-year
high of $6.78 across the region. For the highly sought-after Class A product, it’s more like 5.0% vacancy with average
asking rents of $7.01. This has all helped to make industrial product a much more desirable, and less risky asset
class. But with very little availability, that’s compressing cap rates, which currently sit at an average 6.8%. As later
described, the growth of e-commerce has been a primary driver in this shifting demand, and it’s likely that won’t
change anytime soon.
Warehouse vacancy vs. rents
$7.00
20.0%
$6.78
$7.00
20.0%
$6.78
$6.50
YTD
YTD
$6.50
16.0%
16.0%
$6.00
$6.00
12.0%
12.0%
$5.50
$5.50
8.0%
$5.00
$5.00
Average asking rent (NNN)
Average asking rent (NNN)
Cap rates compressing as rent
growth continues
$120 $130
8.5%
8.0%
$110 $120
8.0%
$100 $110
7.5%
$90
7.5%
7.0%
$80
$70
7.0%
6.5%
$60
6.0%
6.5%
$50
2012
2013
2014
2015
2016
2012
2013
2014
2015
Average cap rate
$100
0.0%
2015
2014
0.0%
Direct vacancy
Direct vacancy
480 Sprague Street in Dedham is a prime example
of soaring rent growth outside of the city. Urban
rents are emanating to outer urban locations
like this one, providing landlords with increased
pricing power due to tenant demand. Here, rents
have more than doubled in the last 4 years.
$80
$70
$60
YTD $50
2016
4.0%
$90
2017
6.0%
4.0%
Case study
$130
8.5%
$4.00
$4.00
$4.50
$4.50
6.6%
8.0%
6.6%
2017
YTD
Weighted average sale price PSF
2013 rents: $5.00 » 2017 rents: $10.50
Average cap rate
Weighted average sale price PSF
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