RI Market Analysis
Historically, the Rhode Island commercial market has been characterized by stability, limited availability of product, very reasonable vacancy rates and modest increases in rates and prices. This condition continued until the second half of 2007 when new development added new product to some office markets and demand noticeable decreased in the industrial sector.
This relatively tight downtown Providence office market environment in the CBD should continue through 2010. However, the other sub-markets of Providence experienced noticeable growth with American Locomotive and the Foundry adding over 300,000 square feet of new space to the market and the availability of another 120,000 SF in Capital Center recently vacated by Fidelity. Additionally, new construction added approximately 63,000 square feet of new available office space to the 550,000 square feet built. With this new available space and a note worthy recent decrease in demand, vacancy in the entire Providence office market will certainly increase given an historical absorption of only about 150,000 SF per year.
The Rhode Island suburban office market experienced significant growth through 2008, expanding over 20% to approximately 7.5 million square feet. Most of the growth was centered in the west bay sub-market which has expanded by about 1.1 million square feet, causing an increase in vacancy from 5% to over 30%. This development has occurred along I-95, on Jefferson Boulevard, in Metro Center, The Crossings and on South County Trail in East Greenwich. The excess supply in the West Bay will take several years to absorb and significant rent concessions are available. The other suburban submarkets remained somewhat unchanged year to year, except for northern Rhode Island, where inventory has decreased due to CVS Corporation’s recent expansions.
The industrial market, with a few exceptions, is still lacking any speculative development or build-to-suit construction due to the relative low lease rates, the availability of competing existing properties and low appraisals compared to the cost of construction. With rental rates between $2.00 - $5.00 per square foot, net of all expenses, speculative construction is not viable. Our data shows the overall vacancy rate for modern, well located industrial buildings between 10,000 sf to 100,000 sf is about 6%, though availability is about 12%. When buildings over 100,000 sf are factored into the formula, the vacancy rate increases to 7% and availability to 15%. While sale prices and lease rates have decreased since 2008, there continues to be a constant, albeit slow stream of activity. Interest rates are low, prices have dropped and the desire for ownership has not waned. It is actually a wonderful opportunity to take advantage of a perfect storm if you have the credit, the business and the confidence in your own future
Rhode Island's retail market that had witnessed a steady growth of development and redevelopment of the primary retail corridor in Rhode Island, which is Route 2 through Cranston and Warwick, and along Route 295 in Johnston and Greenville and in Southeastern Massachusetts along Route 6 in Seekonk and Route 1 and 1A in the Attleboro’s has seen a major slow down in activity with more closings and fewer openings.
As the country deals with its most pressing economic challenge in many years, its retailers are taking it on the chin. Rhode Island and Southeastern MA have seen closings of such national tenants as Linens and Things, Bombay, Comp USA, Office Depot, and KB Toy Works to name a few. Rhode Island historically has not experienced major swings in growth or expansion and at the same time has not been burdened by heavy closings. To some extent, its cyclical nature is mitigated as a result of developers not over-building in the Ocean State. This is primarily due to a lack of strong demographics that national retailers depend on when deciding where or not to expand.
That being said, there are pockets of growth opportunity in Rhode Island that include health clubs, retail banking centers, cellular phone stores, dollar retail stores and local restaurants that continue to grow their concepts. Rhode Island did experience the opening of some national restaurants such as Ruth's Chris Steak Steak House, Shula's 347 and more recently, Fleming's Steak House, PF Chang's and Jacky's Waterplace. Lastly, since the economic slow-down started in 2008, both land lords and tenants have grown accustom to living within the "new reality" and are more willing to come to an agreement on terms.
These contemporary style restaurants have avoided the small Rhode Island market in the past, but with the addition of upscale hotels and new office and residential developments, the Ocean State has finally attracted these types of restaurants. In addition, RI is experiencing the rapid expansion of other upscale concepts including Panera Bread, Tiffany's Jewelers, Trader Joe's, Whole Foods Grocery and Aldi Supermarket.
What these concepts have in common is that they offer the customer a better dining and shopping experience and, as a result, will improve the retail landscape in the Ocean State.