The Port of Boston is not just the site of some of America's most iconic historical moments, it is also one of the anchors of the Massachusetts economy. The port is doing well, but unfortunately, the Boston industrial real estate market is not quite reflecting the brisk business of the port.

The industrial market is at something of a crossroads. On the one hand, throughout 2006 and into 2007, the market has shown signs of growth, with rising abosrption and rents. On the other hand, industrial activity in the Boston, indeed, in the New England area, is in sharp decline, so the main tenants for industrial property are disappearing. Additionally, the industrial space is only very slowly being converted to more desirable uses such as light industrial, flex use and residential or retail use. Although leasing activity is weak, purchase of industrial property is up a bit, particular property in locations that lend themselves to eventual residential or retail uses of the property. Experts expect to have a clearer picture of the industrial market by the end of 2007.

The office market in Boston has been revitalized, and continues to be driven, by small to mid-size leases. Such leases represent the majority of transactions in the office sector and are helping to slowly absorb the available office space. The absorption isn't yet reflected in rents, which are flat, as supply still far outstrips demand. The high end office market is especially hot in 2007, but this trend has been in the making for the last several years. Investors are especially interested in Boston's prized properties. Of note is the $889 million purchase of a one million square foot downtown office property by the Fortis Property Group, an investor, not an occupant.

The retail market is also strong, particularly in South Boston, which is undergoing rapid gentrification. South Boston is now home to a number of upscale shops, resaurants and condominium developments. Vacancy rates are particularly low in the area, and on the South Shore the vacancy rate is at about 1%. Another two million square feet of development is expected to come online in the next year, and experts predict it will be easily absorped. It's not just South Boston that is hot; across the city, retail vacancies stand at about 5%. Experts believe the Boston retail market is fundamentally sound and that this is what is driving investor interest in it.