Rhode Island Office Market Stabilized, Awaits Job Growth
In Providence, R.I., the the Class A office market has stabilized. GTECH Center has been successful in leasing up just about all of its available space to four or five tenants. Consequently, The GTECH Building sold for more than $50 million prior to the end of 2012. In addition, the new Blue Cross tower was successful in leasing 10,000 square feet of available space with plenty of continued interest for additional floors from prospects. Also, Bank of America’s move from its former headquarters at 111 Westminster into space located in 100 Westminster and One Financial Plaza has further helped push vacancy rates down for Class A office space. The current vacancy rate for this product is less than 9 percent in the Capital City.
Consequently, this activity has pushed rental rates for Class A space back over the $30 per square foot mark on new deals.
High Rock Development, which owns 111 Westminster (the former Bank of America building), is currently lobbying the state for tax credits to redevelop the building into apartments. It will be interesting to see, since the 38 Studios collapse, how far the state and city are willing to get involved — or if the building will be left for the market to determine its fate.
The failure of 38 Studios did largely contribute to the increase of Class B office vacancy in Providence to just over 17 percent, even with Hasbro recently leasing 135,900 square feet in the city. However, it should be noted that there are currently a few large office requirements in the city and few places for them to go. Roger Williams University is currently in the market for 75,000 square feet of office and classroom space for its law school and other departments. Additionally, there is the renewal or move of Dassault Systems for 100,000 square feet; NabSYS for 40,000 square feet; and Swipely for 25,000 square feet.
Overall, the vacancy rate in Providence now sits at 16 percent, slightly higher than last year.
The West Bay suburban office market showed some significant improvement in 2012 and into 2013. While there are larger pockets of office space available for sub-division, a positive absorption of more than 130,000 square feet has pushed the vacancy rate in this submarket to below 16 percent. A few of these larger pockets of space are the New England Tech facilities in Warwick (up to 170,000 square feet), a number of buildings in Metro Center, including One Home Loan Plaza (15,000 square feet), Metro East (15,000 square feet) and going all the way up to 300,000 square feet at the former FM Global Headquarters in Johnston. Some of the most notable deals in the West Bay office market over the last 12 months are the leasing of 30,000 square feet to Atrion at 125 Metro Center in Warwick and the leasing of 25,000 square feet by ADP Payroll Services at 300 Jefferson Blvd in Warwick.
In addition, 301 Metro Center Blvd. has had success leasing space between 5,000 and 10,000 square feet and Salve Regina University leased 12,000 square feet at 144 Metro Center Blvd. With this absorption, we expect vacancy to decrease below 20 percent with rents continuing to average in the mid- to high teens for B space and low $20s for A space.
Michael Integlia & Company will soon be coming out of the ground with its newest building on Metro Center Boulevard: Metro East, Phase III.
The Northern Rhode Island suburban office market remained flat during 2011 and the first half of 2012 due to lack of demand, and the low availability of office space. Most of the office leasing that has taken place in this submarket has been influenced by proximity of CVS’s world headquarters, located in The Highland Corporate Park. For example, Colgate Palmolive secured 3,000 square feet at 42 Albion Road in Lincoln.
Looking forward, pricing should remain at current levels at least through the end of the year, with some tightening of tenant concessions by landlords. Current interest rates continue to persuade former tenants to become buildings owners, which is resulting in a lack of office product to purchase. While vacancy may be waning slightly, unemployment rates continue to cause market hesitation. Job growth will precipitate true market strengthening.
— Leeds Mitchell IV, senior vice president, MG Commercial Real Estate