Rhode Island Office Market Stabilizes, Sees New Development
In Providence, the Class A office market has stabilized, thanks to a number of large lease renewals last year as well as new activity in the market. The current vacancy rate for Class A office product is now under 9 percent in the Capital City with an overall office vacancy rate of 14 percent, which represents a decrease of 100 basis points compared to this same point last year. Consequently, this activity has pushed rental rates for Class A space back over $30 per square foot on new deals.
Recently, Nortek completed a lease for 24,000 square feet at the Blue Cross Blue Shield building located in the Capital Center district of Providence. Tech startup Swipely has completed its move into more than 25,000 square feet at 10 Dorrance Street. But for the Swipely expansion, the downtown Providence Class B office market remains stagnant.
There has been some activity on the capital markets front as well in Providence. The Foundry Associates recently completed its purchase of the former American Locomotive Works (ALCO) site, which totals more than 200,000 square feet of redeveloped office space, for $19.05 million. In addition, Providence-based Paolino Properties recently completed the acquisition of 100 Westminster (300,000 square feet), the adjacent Historic Building, 30 Kennedy Plaza and the parking lot located just across the street. The total purchase price for the parcels was $60 million.
Other significant transactions from the past 18 months include 15 LaSalle Square (master-leased by Hasbro), which traded for $29.81 million, and Gateway Center, which traded for $13.23 million.
Finally, it appears that the redevelopment of the former South Street power plant may come to fruition. Developer Commonwealth Venture Properties is working with the University of Rhode Island (URI), Brown University and Rhode Island College (RIC) to redevelop the 120,000-square-foot facility. RIC and URI will utilize the building for their nursing programs, while Brown would utilize it for administrative office space.
In late 2011, the I-195 Redevelopment District Commission was formed to market and sell 20 acres of land freed up by the location of Interstate 195, which was undertaken to relink nearly 40 acres to the downtown area and revitalize the market. Today, all of the infrastructure improvements associated with the I-195 land redevelopment project are well underway. It is expected that real movement should occur in the next 12 to 18 months. Many developers are currently interested in residential development on the southern portions of the land.
The West Bay suburban office market continues to battle vacancy rates, ending 2013 at about 16 percent. Activity has been intermittent; however there is some demand for Class A office space with a handful of active requirements. Regarding new development, Michael Integlia & Co. is in the process of completing a 45,000-square-foot Class A office building, which will be fully leased to Coastway Community Bank. Delivery is slated for summer 2014.
In addition, Integlia is preparing to begin site work for One Metro Center Boulevard in Warwick. The project is anticipated to total 100,000 square feet of office space with an anticipated delivery date of summer 2015. This site was acquired as a part of the company’s purchase of the former Leviton property.
In Northern Rhode Island, the acquisition and redevelopment of 1301 Atwood Ave. by Hobbs Brook Management has yielded a 100,000-square-foot lease with Dassault System, which is set to take occupancy at the end of this year.
Looking forward, pricing should remain at current levels at least through the end of the year, but with continued tightening of tenant concessions by landlords. Current interest rates continue to attract former tenants into becoming buildings owners, which is resulting in a lack of office product to purchase. While vacancy may be waning slightly, unemployment rates continue to drive market hesitation and have precipitated mostly lateral movements within the marketplace.
— By Leeds Mitchell IV, Senior Vice President, MG Commercial Real Estate. This article originally appeared in the May 2014 issue of Northeast Real Estate Business magazine.