PROVIDENCE – The commercial real estate market across Rhode Island is strengthening, with record occupancy rates in industrial properties and shrinking availability in the downtown and suburban office markets in 2017.
The increased interest is driven by activity in Providence, but is benefiting suburban markets because of the small size of the state. The proximity of the Ocean State to more expensive real estate markets in Boston and New York is helping to drive investment.
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These were some of the points made Wednesday in the 2018 Market Outlook, presented by CB Richard Ellis New England.
Among the statistics:
- The downtown office vacancy rate has decreased for the third year in a row, to 11.9 percent at year-end 2017. This compares to an 18.9 percent vacancy rate in 2010.
- Suburban office markets in Rhode Island have a vacancy rate of 12.4 percent, down from 25.5 percent in 2009. “Drastic movement on the suburban side,” said Andrew Galvin, a partner and first vice-president.
- Industrial properties, which include warehouse and manufacturing space, have a vacancy rate of 1.7 percent, the lowest on record. “We are in uncharted territory,” said Thomas Barry, vice president. This compares to 3 percent at the year-end of 2016.
The momentum in the commercial market is driven by activity in Providence, according to Alden Anderson, senior vice president and partner.
But because Rhode Island is a “city-state” this has beneficial impacts on the rest of the state. “The market is starting to get validated by transactions taking place, plus some big, brand-name companies coming here and setting a stake,” he told an audience gathered at the Omni Providence Hotel.
“Investors look at that – Virgin Pulse, GE Digital. These are companies that have a pretty good track record of growing in markets they’re in.”
In 2018, the company projects continuing interest in the urban area of the state, but with more fanning out of leases and sales. “You will see that start to ripple out to the suburbs.”
Office space is being converted across Providence in particular to residential use. The city has had more than a half-a-million square-feet converted to residential over the past four years, Galvin said.
Mayor Jorge O. Elorza, the closing speaker, noted that Providence has 60 development projects in planning or construction phases.
The elephant in the room, Galvin said, is the empty building at 111 Westminster St. in Providence.
The iconic office tower, known as the Superman Building, has been empty for five years since the last tenant, Bank of America Corp., departed.
Galvin told the audience that the continued vacancy of the tower is impacting the downtown market.
“Totally agnostic on use, it’s important to get that building back into service. It is a drag on the market. As we look at that property going forward, we should expect there is going to be a need for a public subsidy.”
Anderson said the status of the building has not necessarily affected price or sales activity, but it is one of the factors that companies and investors consider when discussing commercial purchases or loans in Providence.
“Whenever I talk to an investor, whether they’re looking at financing something or they’re looking at purchasing something in Providence, of the first two questions they ask, one of them will be ‘What about that big vacant building that Bank of America used to occupy?’ ‘What’s happening with that. How is that going to affect the market’?” he said.
“It is a big iconic building in our downtown. It is critical that we … figure out a way to get that building back into service.”
Mary MacDonald is a staff writer for the PBN. Contact her at macdonald@pbn.com.
