Prices in the Greater Boston industrial market range from less than $30 to more than $100 per square foot of building. Before the decline of the Internet data center market in 2000, prices for some industrial buildings adapted to that use reached $200 per foot. There is plenty of rhyme and reason to account for the range. Much of it is locational and is explored in the two accompanying articles and the Baseline Map. Other factors are a building's quality and condition, its size, and the ratio of building area to land area.

Quality and Condition
Quality and condition is a catch-all category that accounts for the most visible differences between buildings, including building age, quality of materials, clear height, proportion finished as office, office quality, extent of air conditioning, number of tailgate docks, functionality, and appearance.

At the top of the spectrum is the decorative block building with 50% office, 100% air conditioning, and 30' height in the warehouse. At the low end is the 12' high wood frame building with a leaking roof. If buildings are graded on a scale from poor to fair, average, good, and excellent, each grade change accounts for a change in price per square foot of building of about 14%.

Building Size
Building size has a substantial effect on price per square foot in the owner-occupant industrial market. Where two buildings are identical in location, quality and condition, and ratio of building area to land area, the building that is twice the size of the other achieves a value per square foot 16% less. Increasing size produces declining price per square foot. A 10,000-square-foot building may sell at $75 per square foot adjacent to an 80,000-square-foot building that, except for size, is its twin and that sells for $45 per square foot.

The tendency is most pronounced where the market is dominated by owner-occupants. It is less pronounced in the market of investors interested in rental income production. Rents for large and small buildings do not change due to size at the same rate as do prices. Investors account for much of the market of buildings larger than 100,000 square feet, whereas owner-occupants make up the majority of the market for smaller buildings.

Floor Area Ratio
The ratio of building area to usable land area (the "FAR") is the final major determinant of price. The building that is tight on its lot, leaving little land for parking and loading, is worth much less than an otherwise equal building with adequate parking. A building area:land area ratio in a range of .25:1 to .4:1 provides adequate but not excessive parking and loading. As FAR doubles (say, from the more favorable .25:1 to the less favorable .5:1), price per square foot declines by about 10%.

These factors are by no means exhaustive. They account for all but about 14% of the variation in prices in the owner-occupant industrial market in this office's Baseline Model study, made through multiple regression analysis of several hundred industrial sales.

When we say that the value of a single-occupant industrial building is $1,000,000, we mean that it has about a two-to-one chance of selling within a range of $860,000 to $1,140,000. Other as-yet untested factors likely account for part of the variation. And these factors (particularly, the components of building quality) can be more tightly defined. But some of the variation is a characteristic of the market itself and can never be removed.

Consider the case of two identical industrial condominiums that sell at different prices. The difference defies prediction and measurement. It is part of the market's "natural" variation.

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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.


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