Over the past couple of months small businesses have been actively on the prowl for buildings in Metro Boston South/South Shore and Southeastern Massachusetts. Most are tenants interested in purchasing and occupying their own property. The majority of them are warehouse and light manufacturing users. Office users are also actively looking to purchase but they are fewer primarily due to the lack of confidence in the office market and overall economy.Office Market
With the office vacancy now over 12% in Metro Boston South/South Shore and over 20% in Southeastern Massachusetts, it may make economical sense to lease instead of purchase. Falling rents and an ample inventory of available space provides a tenant with an opportunity for a favorable lease. But landlords may be unwilling to provide a lease beyond five years, and possibly even three years, at tenant-favorable terms since a market recovery will likely occur sometime in the near future. With this in mind, an office building purchase may make sense. However, a tenant may not be able to locate the ideal-sized building to accommodate their business. This could result in having to purchase a larger building and then leasing the unused portion.
Industrial Market
The industrial vacancy is just over 13%. Some sub-markets are performing better than others. For instance, the South Shore (Route 3) market is outperforming the Route 495 South market which has a vacancy rate approaching 20%. Over the next few months, vacancy is expected to increase across the board as companies consolidate and retract their operations. Rents are expected to decrease by about 5% during this time. The bright spot in the industrial market is that owner users want to purchase as they come out of leases. Most of them have requirements in the 10,000 to 30,000 square foot range. Though the inventory for this size building is currently low, they are motivated by low interest rates. If a building can be located that meets their needs, the debt expense can be similar to the net rent, making a purchase worthwhile to pursue.
