Fewer commercial vacancies sign of stronger economy

Commercial real estate vacancies in Rhode Island continued to tighten last year in both the downtown and suburban markets, as the regional economy strengthened, according to the 2015 Commercial Real Estate Outlook, prepared by CB Richard Ellis-New England.
The Ocean State may also be able to capitalize on the trend in companies looking for values outside the heated Boston market, executives said, in a panel discussion last week that followed its report release.
In capital markets, industry experts reported the flow of investment into Boston commercial real estate could trickle down to Providence and other secondary markets. As recently as a year ago, investors wanted to be in downtown Boston or on Route 128, and did not want to look south or west, said Steve Allison, managing director of Boston-based Paradigm Properties.
“Today, that has expanded significantly,” he said.
Gov. Gina M. Raimondo attended and encouraged the commercial real estate professionals to do their part in marketing the state to companies.
“Every one of you has a role in this comeback,” she said. “If Rhode Island could add 5,000 to 10,000 good, middle class jobs in the next few years, she said: “We will turn around Rhode Island.”
Commercial real estate professionals who attended the Jan. 15 session at the Omni Providence Hotel said the outlook appeared brighter than in years past. Chris Brady, a vice president at Dimeo Properties in Warwick, said while vacancy rates have been dropping in Rhode Island, there has not so far been much indication of capital moving from Boston to the secondary markets. Boston is one of the top three commercial markets in the U.S., the attendees were told.
“There’s not a great rush to get to Rhode Island,” Brady observed. “We’re still waiting for the spillover from Boston.”
According to CBRE, Rhode Island ended 2014 with an overall vacancy rate of 17.06 percent, with slightly more than 2.4 million square feet available. The downtown Class A vacancy remained in the single digits for the third consecutive year, ending at 8.62 percent, CBRE reported. It was the lowest vacancy rate for downtown Providence in six years, said Andrew Galvin, a vice president at CBRE who prepared the office-market overview.
In the upcoming year, several projects will have an impact on the market, he said, including the construction of South Street Landing, a $220 million center that will house a nursing education center for University of Rhode Island and Rhode Island College, as well as commercial and residential components. Other major projects to watch include the former Interstate 195 development sites, CBRE reported. Among the 2014 highlights for downtown Providence:
• Companies in the Capital Center district absorbed 35,015 square feet of space, reflecting demand for office space near the train station. The area ended the year with the lowest vacancies of the past decade.
• Several buildings in Capital Center had net gains, with the largest deal being the 33,000 square feet taken by Nortek at 500 Exchange St.
• Asking rents in the Financial District climbed by 26 cents a square foot, despite an increase of 46,820 square feet of available space.
• At One Empire Plaza, Roger Williams University leased 76,000 square feet and the U.S. General Service Administration leased another 20,500 square feet. Both are scheduled to move in this year. The Empire District, as a result, is almost 100 percent filled.
• In the Jewelry District, construction of the $220 million South Street Landing project is scheduled to begin in 2015. The vacancy rate for existing office space ended 2014 at 14.37 percent, a four-year low.
Across the suburban submarkets, vacancies also tightened, ending the year at a seven-year low of 18.07 percent, according to CB Richard Ellis. Altogether, companies absorbed 121,389 square feet of space.
Among the 2014 highlights:
• The northern Rhode Island submarket strengthened, absorbing 28,532 square feet of available space.
• West Bay, the largest suburban office market, had its lowest vacancy rate in eight years in 2014, with tenants absorbing 83,154 square feet. The vacancy rate dropped to 12.57 percent.
• East Bay remained soft, with a vacancy rate of 21.84 percent.
• Suburban Providence remained stable, with an increase in asking rents to a new high of $18.76 per square foot. The increase reflects the occupancy at 148 West River St., Richmond Square and the ManuCenter along Allens Avenue.
• Aquidneck Island absorbed 15,793 square feet, and asking rents increased to $14.81 per square foot. But overall the submarket is not expected to have increased demand in 2015, according to the report. •

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