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Move Over Boston Industrial, Multifamily Needs Your Land

CoStar Market Insights: Developers are Repurposing Industrial at a Rapid Pace
May 2, 2018
Boston is building apartments - a lot of apartments. In fact, more than 17,000 units are underway, making this one of largest supply waves to hit the market since the 1920s.

Boston is not blessed with large amounts of cheap, undeveloped land. Therefore, development, particularly near the urban core, typically means repurposing existing assets. So what is making way for this huge wave of multifamily supply? It looks like it may be industrial properties.

Since 2010, close to eight million square feet of industrial property was demolished in Boston. Only two years during that time had positive net supply. While many of these demolished assets were functionally obsolete, some were demolished to make way for multifamily and other property types. Industrial often isn’t the highest and best use near an urban core.

Pictured is a map of all industrial properties sold since 2010 for demolition or conversion. Certain areas are teeming with such plays. The urban submarkets of South Boston/Fort Point, Cambridge and Downtown and have collectively lost more than 10 percent of their industrial inventory since 2010. For example, Related Beal, just within the last few weeks, tore down 61,000 square feet in the South End, for a 273-unit apartment/condo development.

This trend has also spread to close-in suburban submarkets, such as Waltham, Watertown and Brighton. From 2011-16, New Balance paid a total of $49 million for 425,000 square feet of industrial space in Brighton for its mixed-use Boston Landing development. Their demolition alone reduced Brighton/Fenway’s industrial inventory by close to 15 percent.

On a positive note for industrial, such supply trends have created a competitive market for functional properties. Couple limited supply with increased demand from e-commerce firms, and rents have begun to soar. Rent growth is now more than 6 percent year-over-year, and is even higher for close-in submarkets. With supply only marginally increasing the next few quarters, such tight market conditions might be here to stay.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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