Prices for industrial buildings change at different rates from city to city. Los Angeles has advanced faster than Boston and Boston faster than Dallas in the last five years. Surveys like the National Real Estate Index tell us so. Within a metropolitan area, prices change at different rates at different locations as well. And the differences within a metropolitan area can be more dramatic than those from city to city.

The Baseline Map of Industrial Buildings is compiled from an analysis of arm's-length transfers involving single-occupant industrial buildings in a size range from 5,000 to 80,000 square feet. It describes the value of an average-quality 1975 brick or block building with an 18' clear height, 15% office space, and a lot size of 66,667 square feet, at locations zoned for industrial use across Greater Boston. Reference to the 1996 map and the current 2003 map brings the differing rates of change into relief.

The strongest price growth from 1996 to 2003 has been in the area of Route 495 from Hudson south to Franklin. This same area saw rapid population growth in the last ten years and, with it, growth at that location in the number of small business decision-makers seeking space for the companies they own. The price rise was strongest at locations immediately adjacent to the highway and at high-quality parks. The overall increase from 1996 to 2003 at some locations in this area exceeded 100%. The majority of locations across Greater Boston - Haverhill, Beverly, Billerica, Woburn, Chelsea, Hyde Park, Westwood, Hingham, and Avon - saw increases in a range from 60% to 85%. The median change was about 70%.

The price increase took place for the most part between 1997 and 2000. It came to an end with the sharp rise in vacancy and the decline in rents of the 2000-2001 recession. The data for the 2003 Baseline Map are drawn from the relatively stable period from the second half of 2001 through the end of 2002.

A short industrial history discussion is in order. Prices in the Greater Boston industrial market reached one peak in 1987 and declined sharply in 1990-91. A price reduction of 50% at that time is well documented. A study by this office for the 1996 Baseline Map indicated prices rising overall at a rate of 5.4% per year from 1992 to 1996. The rate of increase accelerated to 20% per year in the late 1990s. The market peaked again in 2000 and returned by mid-2001 to where it had been in 1987. But the distribution of change has not been entirely equal. Some locations have rebounded in excess of the average, and some have not.

The changes reported here stand somewhat in contrast to those reported in broad surveys like the National Real Estate Index. The Index reported a more modest Greater Boston industrial price decline of 37% from 1987 to 1993 and a more modest increase of 48% from 1993 to 2000. The Index draws its data from large, institutional-grade investment property. The Index may be accurate with respect to institutional-grade industrials. It is not intended for application to the much larger body of industrials of all quality grades and sizes.

Eric Reenstierna Associates surveys the much larger body of data that includes average-quality and mid-sized owner occupant industrials. The difference in the reported rates of change between this office's study and studies like those conducted by the Index is a measure of the difficulty that can result for analysts applying rates drawn from the institutional market to the larger body of industrial properties. Different segments of the industrial market change prices at different rates. What's true for Wall Street and the REITs may not always be true for mom and pop.

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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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