2012 a ‘year of contrasts’ for R.I. real estate, says Capstone

ALTHOUGH RHODE ISLAND'S overall vacancy rate ticked up to 8.2 percent, Capstone Properties' 2012 real estate survey conveyed a positive outlook for 2013. / COURTESY CAPSTONE PROPERTIES
ALTHOUGH RHODE ISLAND'S overall vacancy rate ticked up to 8.2 percent, Capstone Properties' 2012 real estate survey conveyed a positive outlook for 2013. / COURTESY CAPSTONE PROPERTIES

PROVIDENCE – For Rhode Island’s commercial real estate market, 2012 was a “year of contrasts between large and small transactions across all property types,” according to Capstone Properties’ 2012 real estate survey.

During the year, there were nine large transactions in excess of $5 million and 55 transactions with prices less than $500,000.

“The year also saw the re-emergence of investor appetite for all property types, including hotels, office buildings, industrial properties, apartments and land,” said the report.

The number of sales rose 13.7 percent during the year from 190 in 2011 to 216 in 2012. “While some sectors were flat – such as retail and portions of the industrial market – there were enough encouraging signs to declare that the year marked a continuing recovery.”

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The report noted the sale of three Providence hotels in 2012: The Westin, The Biltmore and the Renaissance, adding that the Biltmore also announced major renovations.

According to the report, vacancy began to inch down in 2012 and the retail section, which has been flat in recent history, saw some “significant sales and leases, offering optimism that there will be more recovery in 2013.”

The number of transactions in the industrial market showed “marked improvement” from 2011, the second consecutive year of increases.

The report noted that buildings smaller than 15,000 square feet showed the largest one-year increase in 15 years, with property sales volume increasing from $5 million in 2011 to $12 million in 2012. Properties between 15,000 and 30,000 square feet recorded a 100 percent increase year over year.

“Until now, the smaller user has largely been non-existent in the marketplace, so this level of activity is an encouraging sign of local economic improvement,” said the report.

In 2012, the Rhode Island real estate market saw sales in the office market record some of its largest transactions since the beginning of the recession. Properties included 473 Kilvert St. in Warwick and 15 LaSalle Square in Providence.

“The vacancy rate for the state has begun to decline, and some buildings that have experienced long-term vacancies have begun to lease,” said the report, noting that 300 Jefferson Blvd. in Warwick is now 100 percent leased.

The state’s retail market showed more activity in 2012, although the statewide vacancy rate remains about 7 percent. Smaller tenants have been the staple in the retail market, according to Capstone, and 2012 was hailed as “the year of the yogurt store.”

Although land sales have “not been much of a factor” in the Ocean State in recent years, mostly due to local conditions that did not warrant speculative building and the unwillingness of banks to lend – there were a few “notable” transactions during 2012. The transactions included Highland Manor’s purchase of 135 acres in Tiverton, among others. Capstone said the activity may be “a precursor to new construction.”

“Similar to other markets nationally, apartments continued to be the hot segment of the real estate market given the perceived stability in occupancy rates and cash flow,” said the report. In 2012, a total of 751 apartment units were sold in Rhode Island, although price per unit varied from $41,000 to $125,000.

In the northern region of the state, vacancy increased from 5 percent to 7.6 percent, an “unexpected development, driven by newer vacancies in larger properties hitting the market,” said Capstone.

The Providence metropolitan area saw its vacancy rate drop from 8 percent in 2011 to 7.7 percent in 2012. Capstone attributed the drop to the lease of smaller spaces and corporate users expanding within existing facilities.

Rhode Island’s central West Bay region saw vacancies rise from 5 percent to 6.6 percent, partially due to the continuing effects of the 2010 flood. Capstone said it anticipates that improving market conditions will lower the vacancy rate by the end of 2013.

In the southern Rhode Island/Newport area, vacancy dropped from 14 percent to 12 percent. The report noted that the 2012 vacancies, much like previous years, were concentrated to a few buildings. “Anticipated future growth will come from Quonset Point and potential new developments along the Route 95 corridor,” said the report.

Statewide the vacancy rate has been consistently close to 8 percent for the last few years, though it inched up to 8.2 percent in 2012.

Even as the statewide vacancy rate increased slightly, Capstone said: “Evidence of local companies expanding and occupying previously vacant buildings offer signs of optimism for future economic growth.”

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