PROVIDENCE – “The incredible explosion of new and renovated office space statewide is the story of 2007,” Jay Fluck, a CB Richard Ellis-New England executive vice president and partner, said in the company’s 6th Annual Real Estate Market Overview, released this morning at the Westin Providence.

“On the Chinese calendar, 2007 is the Year of the Boar; however, in Rhode Island, we might call it the Year of the Crane,” Fluck quipped.

The downtown office market has grown by 3 percent since last year, to more than 6 million square feet, Fluck said. It “is dominated by the Financial District, which is 44 percent or 2.8 million square feet of the total; and the emerging Promenade District of 1.2 million square feet; which is 20 percent of the total market, almost double the size of any other submarket.”

Although “most of the submarkets have remained remarkably stable [since 2002],” he said, citing the city’s Financial, Westminster and South Main districts and Randall Square, “the Jewelry and Empire Districts … have decreased in size 37 percent and 38 percent respectively, due to the conversion of tenant occupied buildings to owner occupied, primarily by our universities and hospitals. Conversely, The Capital Center and Promenade Districts have grown 60 percent and 80 percent, respectively,” due to new office construction in Capital Center and mill conversions in the Promenade region.

Weighted average asking rents for office space throughout the downtown have edged up between 1 and 5 percent over the past year, pushed up by increases in real estate taxes, energy costs and tenant fit-up costs, Fluck said. The Jewelry District, however, “has seen a 12 percent increase in asking lease rates, as landlords anticipate greater demand due to the reduced size of the submarket,” after the recent purchases by Brown University. Rates are lowest in the Westminster area and highest in Capital Center, Fluck said, noting that GTECH “has secured two new tenants for its ninth floor, where asking rents are $39 per square foot.”

Vacancies have declined in most regions of the city, though the Promenade area’s office vacancy rate has nearly doubled to 32 percent from last year’s 13 percent due to the addition of 339,000 square feet of office space, mostly at the American Locomotive Works and The Foundry.

Going forward, Fluck said, “With lease rates holding in spite of the increase in inventory, the [office] market remains strong and vital,” Fluck said. “The Financial District and Capital Center will continue to be relatively tight with upward rent pressure for the limited space that is available. The Promenade District with some free parking will be an attractive and plentiful submarket.” In the rest of the downtown, “with limited available space, stable lease rates and no new product on the horizon,” he said, “diligent searches will be required to uncover attractive lease opportunities.”

In the suburban markets, “a more expansive building boom has occurred,” Fluck noted, with the office market expanding by 22 percent since last year to 7.6 million square feet.

“As our state’s population has moved south, the West Bay area has enjoyed a significant growth in office space,” he said, adding 900,000 square feet of office space in the past year, much of it at the 238,000 Rite Aid building in East Greenwich that had been intended as the new headquarters for Brooks Pharmacy.

Meanwhile “highway connectivity to Massachusetts on Route 146 and Interstate 295 has been a major driver of development in the Northern Rhode Island submarket,” where the office market grew by about 400,000 square feet over the year. “Much of this total is the addition to our market of tenant occupied, investor owned buildings,” Fluck said. “However, Albion Crossing at One Albion Road in Lincoln brings 130,000 square feet of new space on the market.”

Office vacancy rates in those areas also surged over the year, to 24 percent in the West Bay and 16 percent in Northern Rhode Island from less than 5 percent in each region last year, Fluck noted. Vacancy rates were stable in the East Bay and Suburban Providence markets, “but Aquidneck Island is the only submarket with less than double digit vacancy at 5.83 percent,” he said.

Lease rates for suburban office space varied widely. They “remained the same or enjoyed 8-percent to 28-percent rent increases,” Fluck said. “The high cost of tenant improvements, energy and real estate tax increases have driven up lease rates in spite of increased vacancy.”

This year’s increase in suburban office space “should take several years to absorb,” given the 1.20 million square feet available and the average absorption rate since 2002 of 155,000 square feet per year, Fluck said. “In the meantime, expect pricing to be very competitive.”

Thomas Barry, a CBRE vice president, said in a separate presentation that the market for industrial space across Rhode Island “has been strong throughout 2007 with notable sales, leasing and land transactions of all sizes.”

“While 2006 was a more measured and steady market, this past year showed an increased demand for quality building and land inventory,” Barry added. “As in prior years, there continues to be more interest in facilities for sale rather than for lease with modern quality facilities continuing to be in the highest demand.”

Industrial space tracked by CBRE statewide this year totaled 49.42 million square feet, 7.5 percent more than last year’s 46.00 million square feet. But not all of that is new; Barry attributed the increase to “a combination of new construction and the addition of existing buildings into our database.” This year’s vacancy rate for those properties is 8 percent, he said.

The industrial leasing market is “moderate,” with rates ranging from $3.50 to $9.00 per square foot, he said. Notable transactions this year have included the Colibri Group’s commitment to lease 111,000 square feet in East Providence and Amtrol’s taking over 152,000 square feet in North Kingstown’s Precision Park.

“Overall, lease pricing has remained fairly constant over the past few years with limited upward movement,” Barry said.

In industrial sales, he said, “modern” facilities “continue to be the area in highest demand” across the state, with customers “actively searching for quality and showing less enthusiasm for the inventory of older buildings.”

Industrial land sites in park settings are selling for $170,000 to $325,000 per acre, Barry said, and developments including Quonset Business Park in North Kingstown, Lakeside Commerce Center in Johnston, Smithfield Business Park and the Plainfield Pike area “all show strong activity and numerous transactions.

Meanwhile, the trend of redeveloping former mill buildings into non-industrial apartments and office space continues, Barry said, citing The Foundry and American Locomotive Works projects in Providence and the recent sale of the 335,000-square-foot former Paramount Card property in Pawtucket. But office conversions of single-story industrial buildings have declined, he said, and the market has seen “very little speculative construction.”

Going forward, Barry said, “Until interest rates increase significantly, we can still expect to see more interest in ownership rather than leasing. … The impact of credit market turmoil has yet to impact Rhode Island fully,” he said, but added: “When the economy is soaring, Rhode Island never seems to get too far ahead of itself, [so] even if the economy declines, we should be less affected by a downturn than other states within New England. We are successfully evolving from a manufacturing-based economy to one adapting to the realities of the global marketplace. … Overall, it continues to be good times for the industrial real estate market.”

CB Richard Ellis Group Inc. (NYSE:CBG), a Fortune 1000 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm, based on 2005 revenue. It has about 14,500 employees at more than 200 offices worldwide. Additional information is available at www.cbre.com.