Rhode Island’s industrial real estate market has avoided the vacancy glut that most markets are now struggling to fill.
That’s the good news.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
The bad news is that there’s little hope of expanding available space to accommodate new or growing industries in the Ocean State, according to commercial real estate services firm CB Richard Ellis.
Experts say that there’s no available space for new, major industrial parks. And even if there were space, investors wouldn’t want to gamble with such a large venture.
“It’s kind of a Catch 22 – we need the product but owners aren’t willing to buy such big pieces of land,” said Thomas Barry, vice president of CB Richard Ellis – N.E. Partners, LP. Because of these limitations, the market will continue to crawl along, prospering but not experiencing significant growth.
The market, though small, is “healthy, driven by small, privately held companies,” Barry said Oct. 2 at CB Richard Ellis’s first annual Rhode Island Market Overview. Industrial park tenants tend to be jewelry manufacturers, small assemblers and warehouses with buildings from 10,000-50,000 square feet in size.
“A lot of users do their work in Rhode Island but the company could be shipping all over the world,” Barry said. The owner usually either lives in Rhode Island or simply liked the quality of life in Rhode Island enough to establish a manufacturing plant here.
The industrial market is composed of more than 41 million square feet of space, excluding mills, and almost 3 million square feet of that is vacant, according to CB Richard Ellis’s findings. The firm excluded mills in its survey, Barry said, because the old buildings do not meet the structural needs of the industrial market.
“The ceiling heights in the mills are too low,” he said. Machinery used now is much bigger than what was used 10 or 20 years ago, Barry said, and buyers want ceilings higher than the standard 8-foot or 9-foot mill ceilings. “The floor loads need to be heavier because the machines are heavy,” he added. “There are usually lots of columns in mills, and columns do not provide good work flow.”
Warehouses also need higher ceilings for storage, Barry said, something that 75 or 100-year-old mills cannot accommodate. That might explain why many mill owners are looking to office space, artists’ studios and living space for their properties.
Sales prices for industrial real estate vary, from $35-$40 per square foot for spaces 10,000-30,000 square feet in size, $30-$34 for 30,000-100,000 square feet and $12-$30 for spaces of 100,000 square feet or more.
Barry said while the Rhode Island prices are lower than those for Massachusetts’ spaces, they are on the rise because of the shortage of suitable industrial buildings.
“I consider them to be acceptable, but we do have a shortage of clean, newer buildings,” he said. “New construction could easily go for $45 to $60 a square foot.”
According to Barry, there is an increase in sales demand and a decrease in leasing demand, as is evident in other real estate because of low interest rates. Buyers are looking for industrial space 10,000-50,000 square feet in size, with 18-foot clear ceiling heights, buildings less than 25 years old, with loading facilities, ample parking, and convenient highway access.
“It’s not just the price that drives the developer to buy the building; the building has to functionally work,” Barry said. “Nine out of 10 calls I get are from people wanting to buy,” which poses a slight problem.
In Rhode Island, there are few parcels available along Route 95, Barry said, a discouraging fact for buyers who want easy access to the highway. Those parcels that are ready for development are appreciating in value. There is much more interest in the central part of the state, in Western Cranston and in Warwick because of their large market base, central location in Rhode Island and proximity to the airport and Route 95. Because many industrial users are reluctant to move and lose local employees, for example, from a plant in North Providence to East Greenwich, having one centrally located eliminates losing employees.
Now more companies are willing to look to Quonset for possible development as space becomes scarce. Ten years ago, buyers wouldn’t even consider bringing their business down to the southern end of the state, Barry said, but “land prices are cheap and the path of progress is working its way down there.”
There is little demand for older buildings, but there are few sizable modern industrial parks with good location, Barry said. With little land to build new parks, the industrial market in Rhode Island will continue to crawl along at a snail’s pace. Even if developers demolish old buildings, there still won’t be enough acreage for a sizable industrial park, he said. And most investors won’t take the risk of buying such large amounts of land anyway, he added.
