2022 Industrial Forecast
We expect to see continued strong leasing activity, low vacancyrates, and spec development projects - by Julie Freshman andGeorge Paskalis
January 28, 2022 - Spotlights (https://nerej.com/section/SP)&...;
In 2022, we expect the industrial market in Rhode Island to continue to exhibit historically lowvacancy rates, i.e. in the 1-2% range for “modern” industrial buildings. Similar to 2020 and 2021,demand for industrial space will continue to come from logistics, medical supply, manufacturing,1/28/22, 12:07 PM NEREJ : The commercial real estate media source. https://nerej.com/print/51261 2/3 public storage and direct to consumer sectors. Supply chain challenges continue to forcecompanies to search for and secure warehouse space in closer proximity to consumers, therebyminimizing delays and disruptions to service.
On the leasing side, 14,000 s/f of warehouse space at 400 Frenchtown Rd. in East Greenwich wasleased in December 2021 to a company that develops and manufactures packaging for the chilledfood industry. At the end of 2021, flex (office/warehouse) tenants at 40-44 Albion Rd. in Lincoln,renewed leases and 7,000 s/f of warehouse and office space was leased to a specialty distributioncompany serving the electronic assembly, aerospace and defense, medical, and other industrialmarkets. A number of companies are and will be looking to expand this year with a need foradditional and overflow warehouse space.
Tenants seeking industrial space anywhere in Rhode Island are hampered by a lack of options dueto overwhelming demand for industrial space over the last two years. The lack of supply hasdriven lease rates upwards from $4 per s/f NNN to $5 per s/f NNN on the low end (bulkwarehouse uses), and from $5 per s/f NNN to as high as $7.50 per s/f, NNN on the high end formid-sized (20,000-50,000 s/f), modern, air-conditioned industrial spaces. Similarly, low supply andhigh demand has also increased lease rates for flex space, consisting of a combination of officeand warehouse space, from $6.50 per s/f, NNN to $7.50 per s/f, NNN on the low end and from $9per s/f, NNN to $10 per s/f, NNN on the high end.
Recent sale transactions include a fully leased industrial investment/ redevelopment waterfrontproperty containing 334,000 s/f of building area on 12.6 acres in East Providence. Multiple offerswere received, and the property sold in just four months to an out-of-state investor just beforethe new year for $8.3 million. A 108,000 s/f vacant industrial building located at 25 Fairmount Ave.in East Providence also sold at the end of the year for $5.8 million to investors with plans to leasethe building. Another multi-tenant industrial building consisting of 80,000 s/f in West Warwick isunder contract and due to close in the first quarter of 2022. This demonstrates the tremendousactivity that has been seen in the Rhode Island market from investors seeking industrial realestate assets.
There is an even greater shortage of industrial buildings for sale due to investors seekingindustrial real estate assets, the continued historically low interest rates and a desire from endusers preferring to own instead of lease. As a result, sale prices are being pushed upwards. A25,000 s/f modern industrial building in East Providence that received multiple offers beforehitting the market was under contract within a couple of weeks and sold at the end of last year toa design/ build manufacturer of process water recycling and metal finishing systems for $2.155million ($86.20 per s/f).
As predicted in the fall of 2021, the increased demand, coupled with a declining supply haspushed prices upward. Interest rates are still low which continues to fuel the preference topurchase by industrial prospects and has also increased purchase prices. Prices for 20,000-50,000s/f buildings have also risen from the $35-$45 per s/f range to as high as $75-$85 per s/f.
Due to the supply issues with industrial real estate in Rhode Island, there has been anunprecedented increase in proposed speculative warehouse development projects, despite theincrease in construction costs since 2020 and the effect of supply chain issues on constructiontimelines. This demand from developers has created a surge in industrial land sales, therebycontinuing to drive land values upward. At the end of 2021, a 200+ acre parcel at I-295 and Rte. 6in Johnston, sold for $13 million for a four million s/f proposed warehouse facility.1/28/22, 12:07 PM NEREJ : The commercial real estate media source. https://nerej.com/print/51261 3/3
The build-to-suit leasing market is also experiencing increased activity due to the lack of availablespace for lease. However, due to the cost of construction, lease rates on these build-to-suitopportunities are typically in the teens per s/f, NNN. For example, a build-to-suit development forindustrial tenants ranging from 10,000-40,000 s/f on Lacroix Dr. in the West Warwick IndustrialPark receives multiple inquiries per week with companies looking for high baywarehouse/distribution space that is just not available in the already built industrial market inRhode Island.
The end of 2021 was an active industrial real estate market with some of the largest deals themarket has seen. In 2022, we expect to see continued strong leasing activity, a heavy demand onthe purchase side, additional proposed spec development projects, and plans for the constructionof new industrial buildings in Rhode Island.
Julie Freshman is a vice president and George Paskalis, SIOR, is an executive vicepresident of MG Commercial Real Estate, Providence, R.I.
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