The Empire Street area in Providence felt a little ghostly at the end of last year. Health insurer Blue Cross & Blue Shield of Rhode Island vacated three buildings in the area, leaving behind some 305,000 square feet of empty offices and a wallowing real estate market.
What a difference seven months can make.
In April, gaming company 38 Studios LLC starting moving into 1 Empire Plaza. In July, the city of Providence started moving offices into 444 Westminster St. Also that month, Hasbro Inc. announced it had formalized plans to open offices at 15 LaSalle Square. Those moves helped push the vacancy rate in the Empire Street neighborhood to zero, from 39 percent just seven months before, according to CB Richard Ellis-New England.
The absorption of so much space so quickly “will absolutely boost the market across the board and really will lift all boats,” said Alden Anderson, a senior vice president and partner at CBRE.
The downtown vacancy rate dropped to 16 percent at the end of June, from 19 percent at the end of December, said CBRE. The Empire Street area showed the most dramatic tumble, with no other neighborhood recording a vacancy-rate change greater than 4 percentage points.
In some ways, Empire Street simply got lucky, said Mike Giuttari, president of MG Commercial Real Estate in Providence. Three tenants all happened to be looking for relatively large spaces at the same time. The buildings were empty and the landlords hungry for tenants.
“It’s certainly not like there’s a lot of demand to be there,” Giuttari said. “These particular spaces just happened to work.”
And while they may be generating revenue now for landlords, the moves have not pushed up rents in the area. CBRE said the average leasing rent in the Empire district stood at $23.43 a square foot at the end of June, unchanged from six months prior. That was down 10 cents from 2009. But before then, rates had been steadily creeping up in the Empire Street area.
Across the city, rates for Class A office space rose to $30.04 a square foot from $29.60 six months ago. Class B office rates rose to $20.61 a square foot from $20.58, while Class C rates dropped to $17.01 from $17.44 six months prior.
Anderson and Giuttari said that the numbers, however, do not tell the whole story. While rents have remained relatively stagnant, landlords are displaying less willingness to grant tenants concessions, such as subsidizing the cost of outfitting offices or enticing tenants with a month or two of free rent.
“We are seeing a definite shift in the wind in terms of what landlords are offering – or feel like they have to offer – to get deals done,” Anderson said.
“They’re not giving away the store,” Giuttari added.
Smaller tenants – those looking for less than 7,000 square feet – are likely in a better position to negotiate, Anderson said. Small spaces dot Providence and provide tenants leverage to bargain with landlords. For larger tenants – especially those needing more than 15,000 square feet – the hunt becomes harder, Anderson said.
Those seeking vast spaces may want to look at suburban Rhode Island, especially in Warwick, where the New England Institute of Technology is vacating seven buildings as it moves part of its campus to East Greenwich.
The 315,000-square-foot, former FM Global corporate headquarters in Johnston also remains on the market after the insurer moved to new digs across the street in late 2009. In Pawtucket, Bank of New York Mellon is preparing to leave an 85,000-square-foot building and move its operations to an existing facility in Westborough, Mass.
The overall suburban Rhode Island vacancy rate inched up to 22.4 percent at the end of June from 21.7 percent at the end of last year, CBRE said.
Average rents remained virtually stable across the Ocean State. They ranged from a low of $13.84 a square foot on Aquidneck Island to a high of $17.18 a square foot in suburban Providence. •
