The Changing Face of the Providence, Rhode Island Industrial Market
The latest CoStar Industrial Report for Providence reports that 2016 ended on a positive note on many fronts for the industrial real estate sector. The Providence industrial vacancy rate overall was down to 4.6 percent, a steady drop from 4.8 percent at the end of third quarter 2016, 5.3 percent at the end of second quarter 2016 and 6.4 percent at end of first quarter 2016. Flex projects showed a vacancy rate of 7.1 percent at end of fourth quarter 2016, a sharp drop from a rate that held largely steady for most of 2016 (11.4 percent for end of third quarter 2016, 11 percent at end of second and 11.5 percent at end of first quarter). For warehouse projects, the vacancy rate at the end of fourth quarter was just 4.4 percent, no change from end of third quarter, but down from 5 percent at end of second quarter and 6 percent at end of first quarter.
It’s more good news for the state’s industrial outlook that the current administration has prioritized bringing businesses and jobs here. There’s evidence in the CoStar report to support that claim. Look at the third-largest lease signing of 2016. It was enacted by sustainable-clothing company Ivory Ella as a result of a concerted effort by the governor and her administration to lure the company through some of the favorable financial incentives rolled out over the past 18 months.
Rhode Island’s rental rates for industrial space make it a competitive market, as well. At an average of $4.91 per square foot, the state’s rental price is below the national average — and has been since at least third quarter 2014, according to CoStar data.
However, these points of good news for the sector (and the state) also indicate that the picture that isn’t entirely rosy. The industrial market in Rhode Island is still very limited due to lack of inventory — particularly in high bay (over 18 feet) warehouse space. It is fairly common to see clients who want to keep their businesses in Rhode Island but can’t, because there just aren’t enough facilities that can accommodate them. And the development of new industrial space is limited because of the high cost of construction.
Meanwhile, a new type of user is now in the industrial market space. Medical marijuana cultivators are becoming very active in the market. While some towns have been more welcoming, there are a slew of regulations that must be met, which has resulted in disqualifying a lot of locations from being able to take advantage of this new-sector opportunity. But with the flurry of new ventures, qualifying industrial space for grow centers is in higher demand — and is only expected to increase for the foreseeable future. This might impact the space for traditional industrial users.
Adaptive reuse projects are also impacting the availability of industrial space in the region; many old industrial properties have been renovated to become live/work spaces and professional offices. Greenwich Mills and Rising Sun Mills are just two examples of properties that have already been converted in this way. Based on the popularity of these newly developed places, quite a few investors are looking to do the same type of conversions in the general metropolitan area.
At the end of fourth quarter, 70,288 square feet of industrial space was under construction, compared to 92,312 square feet that was completed in third quarter 2016, 192,000 square feet in second quarter 2016 and just 15,025 square feet in first quarter of last year. We can see that the demand for industrial property is there: out of four top industrial properties under construction now, three (all set for delivery soon) are 100 percent preleased. The fourth — and largest — is set for delivery in first quarter 2018, and it is already 88 percent preleased.
For Providence, and the state, to keep up the positive momentum it has begun by bringing in manufacturers and industry players into the state — and growing those already here — we must address the dearth of industrial space. In short: more attention must be paid to the construction sector.
But the big question remains: if we build it, will they come?
— By Thomas Sweeney, Principal, Sweeney Real Estate & Appraisal. This article first appeared in the May 2017 issue of Northeast Real Estate Business magazine.