Last July, Grandison and Kate Taber were searching for a place to open their business, Grandbüro Design, a T-shirt design shop. Grandison Taber, who at the time was managing American Apparel on Weybosset Street, liked what he saw in Providence’s downtown.
“We were living in New Bedford and … wanted to open this business and be in more of an up-and-coming city environment,” Kate Taber explained.
When it opened that same month on Eddy Street, Grandbüro – pronounced “grand bureau” – became one of 20 stores that have opened downtown during the last 16 months, according to The Providence Foundation, which reports that storefront vacancies downtown have dropped to about 10 percent.
That’s a drop from the 14 percent the nonprofit reported last year, said Joelle Crane, the foundation’s program manager. Since 2005 there has been a net gain of about 25 businesses, to approximately 215, she said.
And because of that growth, some former office spaces are being transformed to accommodate retail, she said. One of those, the former Telephone Building at 112 Union St., is undergoing a renovation of its 5,000-square-foot ground floor to allow for two retail storefronts, Crane said.
For storefronts on side streets, like Union Street, lease rates have remained low – below $20 per square foot – but on main streets like Weybosett and Westminster, where they are closer to $25 per square foot, they have been rising.
For the Tabers, whose Grandbüro is on a side street, lease rates weren’t a deciding factor in the decision to rent space downtown, said Mr. Taber, who formerly owned Solstice Skateboarding in New Bedford. “But I did look at quite a few spaces – some were reasonably priced and junky and some were overpriced.”
The Providence brokerage firm Hayes & Sherry also tracks retail, said Bill Greene, a partner who heads the retail investment division.
Three years ago the vacancy rate downtown was about 27 percent, he said.
“Specifically, downtown is such a well-defined market, such an easy market for them to pick and say, ‘We’ll find a home here,’” he said.
Hayes & Sherry Partner Peter Hayes said there is a strong correlation between retail, residential and office space downtown, as there is in any community.
“Even though there’s the slower leasing of condos than people might want, the fact is that there are people who are moving into downtown,” he said, adding that that will further propel retail. “The people who live downtown would love to have a green grocer, but you talk to people in that business and they say there’s not enough [demand], yet.”
Hayes & Sherry also reported that they are still seeing a steady interest in office leases, despite the current economy, said partner Karl Sherry. He said the engineering firm Vanasse Hangen Brustlin Inc. and Boston Sports Club both have signed leases to move into 10 Dorrance St. Those tenants will cut vacancy in that building from 35 percent to 15 percent.
At 170 Westminster St., the 12-story Union Trust Building has had a technology upgrade that’s bringing in tenants. FB Capital Partners, the Philadelphia firm that purchased it in 2007, has made it an “iBuilding,” with Wi-Fi, digital signs and increased security, said Sherry. Two of the available five floors have been rented since those changes were announced.
“And once the renovation is complete, I think we’ll get some more attention,” Sherry said.
Gerry Surprenant, executive vice president of MG Commercial brokerage, said interest for office space downtown has stayed consistent for a few years, allowing lease rates to stay the same or increase.
“As far the first-class spaces in the first-class buildings, owners have been able to push prices up $2 or $3 a foot over the last year,” he said.
But, he added, in the past six months he’s seen a drop in interest for smaller office space, from 2,000 to 5,000 square feet.
“The demand there has gone quiet and spaces of that size are staying on the market a lot longer than they have historically,” he said. “And we’re not sure what’s causing that.”
And in the next two years, there will be changes to Providence’s office market. Perhaps the biggest change will be Blue Cross & Blue Shield of Rhode Island’s move from its current downtown offices to a Capital Center headquarters.
By 2010 BCBSRI will move about 1,000 employees into that headquarters, now under construction. It will occupy about 300,000 square feet, said spokesman Christopher J. Medici. The company will vacate about 325,000 square feet in seven offices downtown.
In a larger city, that much space would not have much impact on vacancy rates. But downtown, where there are only about 6 million square feet of office space, it represents about 5 percent.
BCBSRI has put the two properties it owns – 15 La Salle Square and 1 Empire Plaza – on the market, said Charles Francis, president of CB Richard Ellis New England’s Rhode Island office. His firm pegged the downtown office vacancy rate at 14.8 percent in December 2007, higher than the 10.8 percent reported the year before. But in the firm’s Market Outlook 2008, it says lease rates are expected to remain strong.
The downtown market is shrinking, said Sherry, adding that about 365,000 square feet in two office buildings have come off the office market during the last few years. Those buildings were purchased by Brown University and Rhode Island School of Design and will be owner-occupied.
But there has also been a marked increase in Class-A office space outside downtown, including the American Locomotive Works and Promenade developments on the West Side, said MG Commercial’s Surprenant. In the coming year, when those and others are fully available to tenants, they might draw interest from businesses that are now downtown.
The Providence Foundation Executive Director Daniel Baudouin said one of his organization’s overarching strategies is to create that demand by beautifying downtown – a measure that’s largely fallen into the hands of the Downtown Improvement District – and creating more low-cost, short-term parking.
“Certainly, it’s not the same environment as it was two years ago with the economy,” Baudouin said. “So it’s a little bit slower and tougher, but there’s still interest.”
In the coming weeks, he said, there is going to be a new 3,000-square-foot storefront tenant announced on Westminster Street, east of Dorrance Street, where retail storefronts aren’t as common. He said he couldn’t name the tenant yet. •
