City office markets are stabilizing

IMPROVING MARKET: Alden Anderson, Jr., senior vice president and partner for CB Richard Ellis New England, says the markets for Class A and Class B commercial office space in Providence are improving. / PBN PHOTO/NATALJA KENT
IMPROVING MARKET: Alden Anderson, Jr., senior vice president and partner for CB Richard Ellis New England, says the markets for Class A and Class B commercial office space in Providence are improving. / PBN PHOTO/NATALJA KENT

Business owners contemplating upgrading to Class A commercial office space from Class B in Providence – but slightly hesitant because of the uncertainty of the economy or other concerns – may want to go ahead and take that jump now, real estate experts say.
There is prime Class A office space available downtown and the prices are in sync with the market, meaning you may get a deal today that you won’t get next year.
“If you look at the market today, compared to a year ago, it’s clearly in a better place than it was a year ago,” said Alden Anderson, Jr., senior vice president; partner, brokerage services for CB Richard Ellis New England.
“I think as the general economy has improved, the overall market, both the Class A and Class B markets, because the two markets are really linked to each other,” he said. “One can’t prosper while the other one falters.”
In recent years, when renegotiating lower lease rates with landlords the tenants would threaten to move out to the suburbs for a cheaper rent. But that’s not happening as much now.
“I think it just reflects that fact that the [overall] market’s beginning to stabilize,” said Jim Rizzo, senior vice president and regional manager of commercial lending for southeastern Massachusetts and Rhode Island for Rockland Trust. “Given the current stability of Class A office occupancy rates and the willingness of certain property owners to provide reasonable incentives, coupled with limited planned new additions to the market, this may be a good time for many to consider upgrading to Class A office space,” Rizzo said.
The Providence office market ended the third quarter of 2011 with a vacancy rate of 9 percent, according to CoStar Group, a commercial real estate information company. The vacancy rate was down over the previous quarter, with net new space leased totaling 213,806 square feet in the third quarter. Vacant sublease space decreased in the quarter, ending the quarter at 137,895 square feet. Rental rates for Class A space ended the third quarter at $17.25 per square foot, a decrease over the previous quarter.
Class A office rentals remained fairly steady, but still slow with net new space leased of 15,247 square feet in the third quarter 2011, compared to negative 6,838 square feet in the second quarter 2011, no change in the first quarter 2011, and positive 16,506 in the fourth quarter 2010.
Class A buildings had a vacancy rate of 14 percent at the end of the third quarter 2011, pretty much the same over the year period.
Class A office space is generally qualified as extremely desirable, investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market.
An example of an available Class A space can be found in the GTECH building, 10 Memorial Drive. The building, which CB Richard Ellis represents, has 200,000 square feet. There are 7,200 square feet available on the upper floors and an 8,100 square-foot space designed for retail space.
Other examples of Class A office space in Providence can be found at:
&#8226 One Financial Plaza, 332,000 square feet with six spaces, 2,789 square feet to 12,615 square feet available.
&#8226 15 LaSalle Square, 134,949 square feet with six spaces, 20,295 square feet to 27,474 square feet available.
&#8226 100 Westminster St., 390,000 square feet with 13 spaces, 576 square feet to 22,875 square feet available. The Class B classification is used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties.
And Class C space qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market.
“We’ve had some really good things happen,” Anderson said. “The relocation of Blue Cross & Blue Shield from the Empire District over to the Capitol Center [district] raised a lot of concern because it freed up a lot of space.”
But one building was bought by the city and another got filled up by 38 Studios LLC. And Gateway Center, which lost Fidelity Investments about two years ago, is over 65 percent leased.
“And if you look at all those buildings collectively, a year ago there was about 400,000 square-feet of vacant space between those buildings,” Anderson said. “There’s only about 40,000 square-feet (of vacant space left ) that’s 90 percent of that space that has been leased.”
And even though that property is primarily Class B space, the “rising tide floats all boats,” he said.
Another indicator of a stable future commercial office market is the renewal of some substantial leases over various class buildings, which takes some of the uncertainty out of the leasing process.
“There are some substantial tenants in multiple Class A buildings whose leases have been renewed in the last year, which has created stability in that sector,” Anderson said.
As far as prices, trends have been stable but slightly down. Rental rates in Class A have been $22-$23 per square foot in the last quarter to a slight decrease in the third quarter of 2011 of $21. &#8226

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