RI Market Analysis
Since 2002, 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.
In 2008, the Providence office market continued to have stability, limited vacancies and slight rent increases for the entire central business district. National and regional investors continued to be interested in the market as evidenced by the sale of 50 Kennedy Plaza and 170 Westminster Street. This relatively tight market environment in the CBD should continue through 2009. 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. 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 high cost of construction, lack of land ready to develop and a soft lease market. With rental rates generally holding between $2.00 - $5.00 per square foot, triple net, spec construction is not viable. The overall vacancy rate remains well below 10% for non-mill type property in this market, which totals 50,000,000 square feet. Most of the larger transactions that occur in this market remain sales, and there is a limited supply of available properties. The decline of manufacturing is being offset by the conversion of properties to sales-service and back office uses, along with mill type properties going to residential in many cases. Demand for ownership remains stronger than demand for leased space. The displaced tenants from the mill conversions to residential have been plugging the holes in many of the industrial vacancies.
Rhode Islands 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. In Providence and in Cranston at Chapel View, we are seeing for the first time, upscale and contemporary style national chain restaurants penetrating the Rhode Island market. In Providence, Ruth's Chris Steakhouse opened at the G-Tech Building and Shula's 347 opened its doors at the new Providence Hilton. Also, Chapel View in Cranston has been successful in landing Ted's Montana Grille and Pei Wei Asian Grille, which is an off-shoot of P.F. Chang's China Bistro Concept.
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 and Whole Foods Grocery.
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.