WORCESTER – Jim Umphrey has worked in the Worcester real estate market for 35 years and can’t believe what has happened in the past 18 months.

“I’ve never seen anything like it,” said Umphrey of the glowing industrial market.

Umphrey, a director at Kelleher & Sadowsky, a commercial real estate agent in Worcester, said industrial property rents have skyrocketed over the past year and a half, a section that includes the coronavirus pandemic.

At the same time, vacancies fell due to increased demand, so that companies, developers and brokers had to struggle for a limited supply of space.

It’s a situation Umphrey said he had never seen it happen so quickly. It is an assessment that is endorsed by several real estate experts.

“It certainly does,” said Nolan Ryan, vice president of NAI Glickman Kovago & Jacobs, a Worcester real estate agent.

“The (industrial) market is definitely growing,” said Steve Goodman, founder and director of GFI Partners in Boston, a real estate developer based in Worcester County.

What is driving the phenomenon?

E-commerce is a big reason.

Companies, especially Amazon, are longing for storage and sales space.

“E-commerce is the biggest trend,” said Ryan. “Amazon is moving to Worcester County.”

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Amazon is expected to open a 120,000 square meter warehouse and distribution center on the site of the former Greendale Mall in Worcester in the fall of 2022.

Next summer, the Seattle-based giant is also expected to move into renovated warehouse space at 135 Intervale Road in Fitchburg, a 350,000-square-foot facility owned by Goodman’s company.

The e-commerce trend started long before the pandemic, but the pandemic made it worse, Ryan said as online shopping skyrocketed during the closings caused by COVID-19. As a result, Amazon and others need space to store their products for delivery.

From Goodman’s point of view, retailers need space to bring their products closer to their customers so they can be delivered quickly by truck. This replaces the traditional model of customer shopping in stores.

“Retailers see industrial real estate as a growth strategy,” said Goodman.

Other businesses on the prowl

Amazon isn’t the only one asking for more industrial space. Other companies are looking for more square feet for storage, manufacturing, and distribution.

Goodman’s company bought A. Schulman’s former manufacturing facility at 53 Millbrook St., gutted and renovated it, and leased the entire floor plan – approximately 100,000 square feet – to Polar Beverages.

“Worcester is in a wonderful warehouse location,” said Chris Crowley, executive vice president, Polar Beverages. He praised the city’s connection to motorways, which make it possible to ship products quickly and efficiently.

But when it comes to finding production space, it can be “that hard”, according to Crowley.

He explained that many potential industrial sites in Worcester are “brownfield” sites with contamination from previous manufacturers. Cleaning costs can be prohibitive.

From left, Polar Beverages executive vice president Chris Crowley stops to chat with manager Carlos Flores, a 32-year-old Polar employee, as he visits the company's 350,000-square-foot facility in Walcott St. 40 viewed in Worcester.

Massachusetts is also more expensive to manufacture than some other parts of the country. Crowley cited higher costs of doing business in Bay State, including high water, electricity and gas prices.

Polar has a 400,000-square-foot facility in Georgia that Crowley said was a lot easier to handle in terms of paperwork. The lot the plant is on is flat, making the logistics and finishing work a breeze compared to what it takes to get a hilly site in Worcester ready for production.

And Worcester’s doesn’t have a lot of options in terms of sprawling locations that provide the space necessary to build a large manufacturing facility.

“There is finally space out there. It’s all fragmented, ”said Crowley.

Despite these challenges, businesses continue to demand industrial space in the Worcester area. Ryan said he secured 60,000 square feet in Sutton for Un1f1ed² Global Packaging Group. The company develops, tests and manufactures packaging.

Columbia Tech is another example. It provides product development, manufacturing, global fulfillment and aftermarket services for a wide variety of industries. Umphrey’s company worked with the company to land what he called “a lot of space” in Westboro.

Disruptions in the supply chain

This is still the case in many industries during the ongoing pandemic and has contributed to the overheated industrial market, Ryan said.

Ryan said that going forward, companies want to avoid supply chain disruptions, and he has heard of companies stocking up on supplies and securing warehouse space to make sure they aren’t surprised again.

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The cannabis industry is another factor.

Cannabis companies are rampant and exhausting buildings, Ryan said. This takes away the available inventory for businesses that need more space to store and distribute their products.

“They’re eating into what would have been available,” said Ryan.

There are 10 marijuana retail stores in Worcester alone, according to the Worcester Regional Chamber of Commerce.

Rising rents – familiar story of supply and demand

It’s simple economics.

The increasing demand for commercial space with limited availability at the same time is driving up rental costs.

Prior to the pandemic, Ryan said that the “basic rent” for industrial space – what a company pays before the owner passes on expenses such as property taxes, insurance, and maintenance to a tenant – was generally $ 6 to $ 6.50 per square foot.

Today it has gone up between $ 7 and $ 8.50 per square foot, according to Ryan. This can be a significant cost factor for companies with large industrial space requirements.

To address the shortage of space, Ryan said a long-term strategy is to build more industrial real estate. A shorter term plan could be to convert existing buildings.

Both options can get expensive.

First of all, land is more expensive as increasing market demand drives prices up. Added to this are the costs for the raw materials required for construction, which have become more expensive during the pandemic. And there are local regulations like permits that add to the overall development costs.

Ultimately, despite rising rental costs and limited supply, Worcester is in a good position to be a destination for companies looking for industrial space, according to Goodman.

“Worcester is a good place to start in New England,” he said.

Contact Henry Schwan at henry.schwan@telegram.com. Follow him on Twitter @henrytelegram