FILE PHOTO / TIM GREENWAY
Justin Lamontagne
Updated: July 24, 2024
At mid-year, southern Maine's industrial real estate market settles to pre-pandemic levels
Photo / Courtesy, Dunham Group
Industrial buildings are shown on Riverside Drive in Portland.
After setting a torrid pace in the past three years, southern Maine's industrial real estate market is starting to stabilize, according to a new report from the Dunham Group in Portland.
The Southern Maine commercial real estate market is fine, said Justin Lamontagne, partner and designated broker.
The stabilization comes after record setting years in 2020-22, when the market was going "gangbusters, with increasing values and demand across all sectors," he said.
The "incessant calls and demand have clearly slowed in 2024," but only in the context of the crazy past few years, Lamontagne said in the report.
"The truth is it feels very 2019-ish," he added. "In other words, normal."
There's still a lack of inventory
The Dunham Group's Industrial Market Survey tracks over 30 million square feet in 15 cities and towns in southern Maine.
As of July 1, 2024, the total vacancy rate is what Lamontagne characterized as a "paltry" 2.27%, up 30 basis points from Q1.
In the sub-markets, the Greater Portland vacancy rate is "stiflingly low" at 0.69%, he writes.
Of the total of 19 million square feet of industrial space in nine municipalities within a 10-mile radius of Portland, only 131,000 square feet is available — and 70,000 square feet of it is in one building.
"This is a striking fact and, as I’ve reported previously, simply bad for business in the Portland area," Lamontagne writes. "The lack of inventory is forcing businesses to consider alternate locations and, in some cases, that’s out of state."
While new construction and land development remain options, they are costly and time-consuming endeavors. Talk has turned to repurposing vacant or underused office and retail spaces.
"I suspect this trend to continue and exacerbate," Lamontagne writes.
Industrial values, both on the sale and lease sides, continue to appreciate. Sale prices regularly top $100 per square foot. Replacement values can exceed $150 per square foot.
"This proves that the often complicated and slow process of new construction is deterring end-users," Lamontagne writes. "And it further indicates that shovel-ready industrial land sites like the Innovation District at Scarborough Downs are the most successful model."
Lease prices are also on the rise, though not as dramatically as sale values. And, anecdotally, leasing activity has slowed.
"While the vacancy rates reflect a clear supply and demand imbalance, our phone and deal action suggest that may change slightly towards the end of the year," Lamontagne writes.
Most listed spaces on the market are now asking well above $10 per square feet on a "triple net" basis, where the landlord pays expenses. The triple net level is reaching as high as $13 to $14 a square foot for smaller units, surpassing rates for Class B and low-A office spaces in many cases.
"This has led to sticker shock for industrial tenants, especially those new to the market or accustomed to years of rates near $5 to $6 [per square foot]," he writes. "This push-back from tenants is partially accounting for the slower pace in lease rate increases."
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