Michael Rubin, Posternak Blankstein & Lund

The conversion of manufacturing, warehouse and industrial space has become a popular conversation topic in the commercial real estate world. According to a fourth-quarter industrial report from Transwestern | RBJ, the state of Massachusetts added 2,437 industrial jobs in 2015, and the fourth quarter of 2015 was the sixth consecutive quarter of positive absorption for warehouse and manufacturing space at 344,000 s/f. The Greater Boston real estate market has reaped the benefits of this trend, demonstrating the lowest vacancy rates on record for warehouse and manufacturing space. This space will continue to be repurposed, driving manufacturing, warehousing and industrial space to the suburbs.

Vacancy rates for the Boston area warehouse space have plummeted to 11%, far lower than the five-year 15.7% average vacancy, and rent has increased 2.4% to $5.92 per s/f. The I-495 North market has accumulated 1.5 million s/f of warehouse space in the last 14 quarters, and 12 of the last 14 quarters show positive warehouse absorption. Manufacturing spaces throughout Greater Boston experienced a decrease in vacancy to 9.9%, while asking rents rose by 5.6% to $8.09 per s/f. Manufacturing properties in the 1-495 South market have experienced positive absorption for two years in a row.

December’s positive jobs report, the Federal Reserve Bank’s decision to raise interest rates by 25 basis points and the projected value of General Electric’s move to Boston have contributed to an optimistic outlook for the Massachusetts and US economy. While the robust economy and influx of industrial jobs could partially explain these falling rates, another likely explanation is the transformation of Boston’s office spaces. More and more, we’re seeing developers utilize, untouched spaces more efficiently in high rise buildings for office and residential use. Manufacturing, warehousing and industrial space is being converted for office and residential use. For example, Boston Properties is developing a 16-story office building on the postage-stamp space in front of the Prudential building, blocking the views of the Prudential floors overlooking the Charles.

GE’s move to Boston could further impact this trend. As the company settles on a location for their Seaport office space, many employees will search for nearby housing. A client who owns a terminal building in the suburbs has mentioned the concerns of those looking to purchase his building as being driven from Boston. Businesses are having transportation issues within the city of Boston, as space is decreasing for large trucks and loading docks.

Considering the transformation of Greater Boston’s business landscape, this trend of reduced warehouse space and increasingly condensed commercial and residential space aligns with many others that we have seen in recent years. As Boston’s neighborhoods house more hotels and residential buildings, as well as life science and technology companies, the city is also seeing an influx of millennial workers who enjoy living close to where they work. Our city’s real estate market is booming, and I look forward to watching the continual transformation of Greater Boston.

Michael Rubin is partner at Posternak Blankstein & Lund, Boston.