Living in the shadow of a giant can be difficult. Just ask those on the business end of Greater Providence’s commercial real estate market. For them, the looming giant is the Greater Boston market.
“The Boston market is booming – that’s part of the problem,” said Mike Giuttari, president of MG Commercial, a commercial real estate brokerage firm in Providence that serves Rhode Island and southeastern Massachusetts.
“Prices don’t seem to matter – the Cambridge area is approaching $100 per square foot” for new office space, said Giuttari, who also serves as New England chapter president of the Society of Industrial and Office Realtors.
“Buildings up there are being taken two years out [prior to opening]. They’re being pre-leased,” he added. Construction “contractors can demand anything they want. We’re close to Boston, so contractors can charge high prices and if they don’t get them here, they can drive 40 minutes up to Boston.”
According to Giuttari and other brokers, demand has been so robust in the Boston area that certain pockets of the Rhode Island commercial market aren’t getting the attention they deserve. That includes a relatively strong market for luxury office space and apartments in downtown Providence.
For instance, the IGT office tower on Memorial Boulevard was sold for $71 million in late December, said Matt Fair, senior vice president at Hayes & Sherry Real Estate Services, a commercial real estate brokerage firm in Providence and a Cushman Wakefield alliance member. For the market, said Fair, who helped broker the deal, “that’s the high-water mark.”
The price for the IGT tower, which is nearly fully occupied, topped the 2007 sale of One Financial Plaza for $65.8 million, which was resold in August for $51.8 million, property records show.
The Wexford Innovation Center, nearing completion in the city’s Jewelry District, is seen as another example of relative strength for Providence’s office market, though $37.5 million in state incentives did help make it financially feasible for the developers and tenants.
‘We don’t know where that demand [for new apartments and hotels] is coming from.’
NEIL AMPER, Capstone Properties vice president
Downtown’s office market ended 2018 on a good note, with 9.8 percent vacancy, down from 12 percent a year earlier. The year-end office vacancy rate for suburban Rhode Island was 12.7 percent, up slightly from a year earlier, according to new figures from commercial real estate services and investment firm CBRE Inc.
Meanwhile, with rent levels up at local apartments, several new Providence apartment buildings are in the works downtown. Leading the way is New York-based developer Jason Fane, with his controversial plan to build a 46-story luxury residential tower up to 600 feet tall on Providence’s riverfront that would be Rhode Island’s tallest building.
With an estimated cost of $300 million, the Fane project has yet to break ground amid local opposition. That includes a lawsuit filed this month by a local real estate brokerage and appraisal firm and a local nonprofit group seeking to block construction. They argue the zoning change approved for the project does not conform with Providence’s Comprehensive Plan.
Neil Amper, vice president at Capstone Properties, a real estate brokerage, management and services firm based in Burlington, Mass., with a regional office in Providence, isn’t so bullish on the local market for new apartments and hotels. 2018 and 2019, for example, will see a total of 633 hotel rooms added in Providence. In 2017, there were 2,300 rooms, according to Capstone.
“We don’t know where that demand is coming from,” Amper said. “The population hasn’t grown. It remains to be seen which ones will be successful.”
Overall, he and other market watchers said, there’s not much new commercial real estate being developed outside downtown Providence. They said the market had a solid year in 2018, though demand for retail space lagged the other sectors – office, industrial, and multifamily housing.
One positive sign was a decline last year in the delinquency rate of commercial real estate loans in the Providence-Warwick metro area, which covers neighboring communities in southeastern Massachusetts. The delinquency rate dropped to 4.5 percent in December, down from 14.3 percent in December 2017, according to Trepp, a commercial real estate and banking markets research firm in New York.
In comparison, the Boston metro area’s delinquency rate declined to 0.4 percent in December, down from slightly under 1 percent a year earlier, Trepp found.
Some local real estate professionals see the market softening some in 2019, as economic growth nationwide is projected to slow. At the same time, high demand and escalating prices less than an hour drive north in Greater Boston have pushed up construction costs here, yet demand isn’t as strong, dampening interest among developers.
“We’ve had a healthy [economic] expansion. There are signs of a potential weakening,” said Thomas Sweeney, principal of Sweeney Real Estate & Appraisal in Providence. “Business is good. But people who have been around long enough are starting to get fretful about when there’ll be a downturn. …There’s still appreciation in the markets, though it will probably slow down this year.”
Another factor: a lack of undeveloped land in sought-after locations. “This isn’t Texas, where there’s land everywhere,” Sweeney added.
Perhaps the strongest of the commercial sectors in Rhode Island is industrial. “The industrial market has been as good as it’s been in a long time,” Amper said.
Yet across all sectors of the commercial market, “We don’t have the rent structure to support many new buildings,” Amper added. “The economy is deeper in Massachusetts. There are more companies and industries. Rhode Island is a little thinner in terms of each sector.”
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.