NEWS

PROVIDENCE – The commercial real estate market across several submarkets of Rhode Island continues to strengthen, most dramatically seen through declining office vacancies, increasing lease rates and redevelopment of vacant land. The 2017 Rhode Island Market Overview, presented by CB Richard Ellis-New England executives, included an upbeat recap of the strengthening office market in Providence, which has been buoyed by conversion of existing space to apartments and absorption through expanding or relocating companies. In the industrial marketplace, the overview reported increased demand for space among manufacturers who are expanding, and declining inventory. Although the state has a limited supply of available industrial space across all sizes, speculative development is not economically viable because rents have not increased enough to justify new construction, CBRE reported Four projects underway or newly completed in Providence – a new engineering building at Brown University, a computer science and engineering building at Johnson & Wales University, the South Street Landing complex and conversion of a former industrial building to residential lofts at 95 Chestnut St., account for $367 million in new development alone, according to CBRE’s First Vice President Andrew Galvin. Continued conversion of vacant office buildings to modern apartments has contributed to the decrease in the Downtown Providence vacancy rate, which reached 13.4 percent in 2016. The net absorption, across eight sub-districts, was 137,000 square feet, he reported. Rents increased across all segments of the downtown office market. Class A rents increased 3.5 percent. Class B rents rose 1.4 percent, and Class C rents went up 5.6 percent, Galvin reported. Since 2013, 11 office buildings totaling more than 500,000 square feet have been converted to residential uses, he said. New or proposed developments totaling several hundred million dollars would create additional space for office or residential use, he said. They include the Wexford Science & Technology project for Parcels 22 and 25 of the Interstate 195 Redevelopment District, which will include office space, and the River House 270-bed graduate student housing proposed as part of the South Street Landing. “It is important to note the residential pipeline looks strong, and will help position Providence effectively as young and tech-oriented companies continue to look at this market to locate in or grow.” One of the challenges for the city, he said, is the lack of available, contiguous space in the range of 50,000 square feet, which is the footprint sought by many larger companies. Currently, 12 prospective tenants are looking at spaces in downtown Providence, all in the range of 25,000 square feet and up, he said. “Rhode Island is competitive nationally. Many of these tenants are greater than the typical tenant that enters our market,” Galvin said. In suburban markets: • Northern Rhode Island absorbed nearly 110,000 square feet of space in 2016, with its corresponding vacancy rate dropping to 16.6 percent. From 2009 to 2012, this submarket had vacancy rates that exceeded 30 percent. • West Bay had 44,000 square feet of absorption in 2016 and the sixth consecutive year of declining vacancy rates. The market had 9.9 percent vacancy in 2016, down from a high of 26 percent in 2009. • East Bay, despite having a large project come online with University Medicine Foundation, had another 89,000 square feet in absorption. The market has 14.3 percent vacancy in its office stock. “This submarket is starting to become a destination for medical offices,” Galvin said, due to the proximity of hospitals in Providence and the relatively less-expensive land costs in East Providence. • Aquidneck Island had numerous transactions in 2016, which is unusual for that market, Galvin reported. It had 11,000 square feet of absorption last year, with a vacancy rate of 15.7 percent. Because the market is anchored by the defense industry, it may benefit from the incoming administration of President-elect Donald J. Trump, he noted. Trump has said he wants to strengthen military spending. In brief remarks, Gov. Gina M. Raimondo opened the overview with a review of some of the new employers that have announced expansions into downtown Providence, such as GE Digital, Johnson & Johnson and Virgin Pulse. “These are household names. These are Fortune 50 companies that could be anywhere.” She emphasized not only the relative affordability of Providence and Rhode Island, in comparison to Boston, but also the decisions made by state leaders to reduce the tax burden on corporations and create new development and job creation incentives. “What I call setting the table for growth,” she said. She started by asking the real estate professionals, including financiers and developers, who were from outside Rhode Island to raise their hands, and directed her initial comments to them. “My message to you is it’s a good thing you’re here, because we have a lot going on in Rhode Island. Last year was a great year for us. I’m pleased to see that you’re down here and are interested in Rhode Island.” “Many of you, as I was chatting with you, were saying to me, ‘Hey, I’m hearing about all the good things happening in Rhode Island. I’m realizing there are actually deals to be made here, development to be done here. Money to be made here. It’s not all just in Boston. And that is my message to you today.” http://www.pbn.com/Report-RI-commercial-real-estate-market-continues-upswing,119808?category_id=61&sub_type=stories,packages