Rhode Island’s Office Sector No Longer Tenant’s Market
The office sector in Rhode Island’s commercial real estate market has seen a strong carryover and positive momentum from 2017, into 2018, which we continue to enjoy today. The market has seen positive absorption in most areas and with little speculative development on the horizon, lease rates are being affected accordingly. It’s safe to say, it is no longer a Tenant’s market.
In Providence, vacancy rates are hovering in the 12 percent range, down from 16.5 percent just a few years ago. Recent projects include the redevelopment of South Street Landing, a $230 million dollar renovation of the former Narragansett Electric power station which is now home to the URI/CCRI Nursing School as well as some of the administrative offices of Brown University. Just a block away, construction is underway for the 191,000-square-foot Providence Innovation Center. This will be occupied by the Brown University School of Professional Studies, Johnson & Johnson and the Cambridge Innovation Center.
The redevelopment of 75 Fountain Street, a 160,000-square-foot building, once fully occupied by the Providence Journal, has also enjoyed positive absorption. The redevelopment by Nordblom Company and Cornish Associates has attracted companies such as Tufts Healthcare, GE Digital and Virgin Pulse to join the Providence Journal.
Most of the downtown development however, has been hospitality or residential driven. First Bristol Corp and Paolino Properties are currently developing a 120-room Homewood Suites hotel and the Procaccanti Group is building a 168-room, Marriott Residence Inn. The continued trend of adaptive reuse development for functionally obsolete office buildings is most recently highlighted by Paolino Properties redevelopment of 76 Dorrance Street into 44 residential apartments and micro lofts. There are also many new residential construction projects currently under way. There are more than 800 residential units being developed in downtown with more projects on the horizon, including a 46-story residential tower by New York-based developer Jason Fane.
Still looming over the capital city is 111 Westminster Street, a 350,000-square-foot former headquarters for Bank of America that has been vacant since 2013. It was developed as a single-tenant building and now sits as an obsolete multi-tenant property, too expensive to renovate. Without state and municipal assistance, this building will remain vacant for the foreseeable future.
Looking south, the West Bay Suburban market realized negative absorption of about 65,000 rentable square feet and a vacancy rate of 11 percent. The consolidation of Citizens Bank into a new 420,000-square-foot corporate campus in Johnston will further create large blocks of office space that are not easily sub-dividable. However, tenants who drive the market, that is those looking for 15,000 square feet or less, will be hard pressed to find many viable options. The largest developer in this market, Michael Integlia, & Co is realizing 90 percent occupancy rates with lease rates for first generation space in the $25 per square-foot range. Unfortunately lease rates are not keeping pace with construction costs, which is stunting any new development. Finally, the 93,000-square-foot former GTECH/IGT world headquarters located at 53 Technology Way in West Greenwich was purchased at auction by UHaul for $26 per square-foot. UHaul intends on converting the building to self-storage.
In Northern Rhode Island, the acquisition and redevelopment of 1301 Atwood Avenue in Johnston, by Hobbs Brook Management continues to yield new tenants, most recently Pannone, Lopes, Devereaux & O’Gara leased 20,000 square feet and will join Dassault Systems with 100,000 square feet and New York Life who lease 25,000 square feet.
Looking forward, with little to no speculative development on the horizon, vacancy rates should continue to contract with a continued slight increase in lease rates. The wild card in the market right now is Hasbro, who is allegedly looking at development sites in and around Downtown Providence to relocate their 600,000-square-foot headquarters from Pawtucket. The ripple effect of a relocation of this size into downtown Providence would be an obvious game changer.