Industrials are the places where real work gets done. Work is what Rosie the Riveter and people in blue collars did, standing at a machine all day, riveting, hammering, grinding, and sweating. If you wear a suit and don't get dirty, what you do is not work. The big industrials are a product of the day when we discovered the efficiencies of mass production. Today, an ever diminishing proportion of the work force (in 1997, 15%) is employed in industrial labor. Robots do more and more of the work. Yet we continue to build big industrials. We change, but the demand for big boxes to house industry remains.
More than other building types, the big industrials (industrial buildings of more than 100,000 square feet) mark the changes of the past 100 years. Once again, we build eight-bedroom, gable-roofed, richly detailed houses in a style like the Victorians. But no one builds a multi-story, brick-clad, post and beam shop any more. Industrials went suburban, and they went single-story. For them, 1950 was the divide. The big industrials have largely been built for a single occupant, a corporation. Often, when the occupant departs, the building requires adaptation. Some big industrials continue in their designed use, as single-occupant buildings. Two of the largest transactions in Greater Boston in 1997 involved buildings of this kind, the former Jordan Marsh warehouse in Squantum leased to Boston Scientific and a 630,000-square-foot building in Billerica leased to K-Mart. Other large industrials find no single user and require division into spaces of less than 100,000 square feet. The market of buyers for these is investors. Multi-tenant buildings fared poorly in the early 1990s, when rental income investors stood on the sidelines. They have become prime property with the rise of the REITs. Some older, multi-story plants go out of industrial use entirely. They get new lives, as self-storage warehouses, loft apartments, assisted living facilities, hotels, museums, colleges, labs, offices, indoor sports facilities, or, for sites with good traffic exposure, retail redevelopments. To properly evaluate a large industrial requires an awareness not only of the industrial market but of the market for adaptive re-use.
The Sales Comparison Approach is the primary tool in the valuation of single-user industrials. It allows analysis by multiple regression and other techniques that can give the appraiser a high degree of confidence in the conclusion. (See various articles on industrials at this office's Web page, erassoc.com, and "Industrials: The Baseline Model," by this writer, in the July, 1997, issue of The Appraisal Journal.) The Income Capitalization Approach is a necessity, as rental income investors are in the market, in force. And for the first time in a decade, the Cost Approach is relevant. New developments either completed or under way in Greater Boston include buildings for Lindenmeyr Munroe, Bed & Bath, and USCO in the 90,000-160,000-s.f. range and a 330,000-s.f. building for Chadwick's, at a cost of $36.25 per foot.
The big industrials are a market headed in different directions. One the one hand are one-story, post-1950 buildings in industrial parks with good highway access, which, so long as the economy remains strong, can expect to be joined by new buildings of the same kind. On the other hand, dysfunctional, older buildings at a distance from highways trend toward re-use. The fuel for change for these is the strength of other sectors: office, retail, and residential.
Eric T. Reenstierna, MAI
24 Thorndike Street
Cambridge, MA 02141
Eric Reenstierna Associates LLC is a real estate appraisal firm taking on valuation and consultation assignments in Greater Boston, Massachusetts and New England. Eric Reenstierna, MAI, is the office's principal and is a commercial real estate appraiser.
24 Thorndike Street
Cambridge, Massachusetts 02141