When Spherics Inc., a biotechnology firm spun out of research at Brown University, announced in August that it was moving from Lincoln to Mansfield, Mass., company leaders said they’d been lured away by a $2.5-million loan and a strong biotech cluster.
Rhode Island economic development officials added that Spherics, before talking with Massachusetts, had tried to find a way to expand in this state. But Rhode Island didn’t have a suitable site, a critical mass of biotech companies, or the kind of financial support that the Bay State offered to help pay for a new manufacturing plant.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
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It’s a growing problem for the state, says Michael McMahon, executive director of the R.I. Economic Development Corporation: The state’s short on good industrial space, and it’s not set up to encourage the private sector to develop more of it.
“It’s not going to happen on its own,” McMahon said. “And if we’re going to be able to stop companies like Spherics from going north, we’re going to have to have something available for them.”
The irony is lost on no one: Rhode Island, birthplace of the Industrial Revolution, a state built on manufacturing, has a factory space crunch. Even with scores of manufacturing plants shut down in the last few decades, and dozens of vacant mills, there’s a severe shortage.
“I’ve been in the business here for 30 or 40 years, and it’s the first time I’ve seen a market this tight,” said Charles T. Francis, president and partner of CB Richard Ellis in Providence. Companies want to buy buildings, Francis said, but few are available, so they’re having to lease, and at relatively high rates. Or else they can build, but industrial park land is also scarce, and other potential sites don’t have the infrastructure or necessary permits.
“It’s been a tough time, and it’s not going to get any easier,” Francis said.
But what about all those mills, and the factories that companies keep vacating as they shut down or move their production facilities to other states or offshore?
Some are going on the market: Coto Technology, which is moving its production facilities to Mexico, is vacating prime space in Huntington Industrial Park in Providence, and Jeff Finan, head of industrial properties at Hayes & Sherry, said it’s already being marketed.
An exact price hasn’t been set, but it will probably be in the $60-per-foot range, Finan said – about 50 percent more than it would’ve cost just five years ago. It’s a tough market for buyers used to getting bargains, he said, but “there’s very little available.”
“If you look at the industrial parks, the vacancies are in the single digits, even the low single digits,” Finan said. And for large operations, he added, the only large Class A buildings on his roster right now are Coto (81,000 square feet) and ON-Semiconductor (140,000 square feet on a 22-acre site in East Greenwich).
Manufacturers aren’t used to that environment in Rhode Island, Finan said – historically, they’ve been able to get bargains. But with office space at a premium, too, increasingly, industrial buildings are being snatched up for what Francis called “higher” uses: the Monet/Trifari building in East Providence, bought by Bank of America in a deal that Francis brokered; Citizens Bank’s call center on Jefferson Boulevard in Warwick.
The shortage cuts across “every sector of the industrial market,” Finan said, but it’s particularly severe with what some manufacturers consider prime space – single-story, large, with 25- to 30-foot-high warehouse space. Even a mass exodus of large manufacturers wouldn’t free up such space, Finan said, because Rhode Island’s historically high inventory taxes led companies to avoid warehousing in large quantities.
Most manufacturers can work with lower ceilings, but Rhode Island’s older industrial buildings still can’t make the cut.
“Today’s definition of industrial space is single-story, high bay, in excess of 18 feet,” said Francis. “There is not a lot of that kind of space.” Older buildings tend to have 12- to 16-foot ceilings, he said, and most mills are multi-story and dependent on freight elevators.
Today’s manufacturers don’t want to be in mills, Finan agreed. So the mills are being redeveloped as housing, offices or, in some cases, smaller facilities for startups and research operations. And when possible, companies are building new.
But even that’s no picnic, Finan and Francis said. Yes, there are several good industrial parks, but finding a large, appropriate parcel can be challenging. The market in northern Rhode Island – which has special appeal for companies with ties to the Route 128/Cambridge corridor – offers few options: Smithfield Business Park, which started out with about 70 acres, is down to about 25, Francis said, Woonsocket’s Highland Industrial Park is almost full, and Cumberland’s side is filling up, and that whole region is rocky and hilly.
On the other end of the state, Quonset Point, which CB Richard Ellis represents, is quite active, Francis said.
For the state, new construction is “a great plus,” Francis said, because it creates jobs, boosts the tax base, and “gives us more modern facilities.” But both he and Finan agreed that it’s also expensive – sometimes prohibitively so, especially for developers.
To begin addressing that concern, the EDC this year proposed creating “credit enhancements” to support private-sector development of 100,000 square feet of “flex space” in northern Rhode Island targeted to biopharmaceutical manufacturers.
Building such space, officials estimated, could cost up to $20 million, not including site improvements.
The General Assembly did not approve the plan, nor did it endorse another EDC initiative: the “Growth Center Jump Start Program,” which would have created a $25-million revolving loan fund to create “pad-ready sites” for commercial and industrial use.
That project was meant to address two issues, McMahon said: the shortage and high cost of space, especially for companies that want to move in within six to 18 months, and the spread of industrial facilities out of traditional hubs and into suburban and rural land.
In Providence, City Planner Thomas Deller acknowledged that officials have mostly given up on developing industrial spaces, because the available properties are so inadequate – and yet “we have to keep space in the city for jobs.”
The “Growth Center” program would have asked communities to identify priority areas, encouraging the reuse of existing structures and brownfields – but also suburban land as needed – and take care of zoning and infrastructure issues in advance. Then, as an extra help for developers, the EDC would’ve provided “jump-start” loans of up to $2.5 million.
“I am not advocating a ‘build it and they will come’ approach,” said McMahon. “What we are trying to encourage is a market that’s got flexible space. … We want to work with the private sector so we can help them to take the first step.”
The interest in building is there, Francis said.
“In the old days, Quonset and other state-sponsored land opportunities were underpricing the market, so no private developers came. Now that’s ended, and private developers are looking very seriously and trying to get an edge in that market.”
