Report Says Commercial Real Estate Market is Improving
Wednesday, April 18, 2012
Rhode Island’s commercial real estate activity may be slowly bubbling again, though not nearly high enough to be considered a boom.
While Rhode Island’s recovery lags behind neighboring states, Neil Amper, Capstone vice president and the author of the report, saw enough good news to feel optimistic about the days ahead.
“Rhode Island tends to lag a bit when coming out of a downturn, but we’ll catch up. We always do,” he said.
Need New Retailers
There were a total of 190 commercial property sales in 2011, including increases in industrial and office properties. However, retail aggregate square footage sales dropped 29 percent and aggregate sales value dropped 19 percent.
Amper attributed much to the growth to strengthening of businesses that managed to persevere through the economic downturn.
“When you come out of a recession, the survivors pick up business from the people who didn’t survive, and you get a growth spurt in sales. You need more space, and the people who might add 10,000 square feet of space now need 15,000 to 20,000 square feet of space,” he said.
Retail numbers lag in large part because of the maturity of the Rhode Island market, Amper said.
“Most of the major retailers are already in place. For growth, you have to have new retailers, but there haven’t been any,” he said.
Positive Developments
Much of the growth in the office market, the report noted, is being driven by owner/users instead of leasing, thanks to a lack of tenant-driven demand.
Some movement in the market, said Amper, is the result of retailers finding better deals for themselves within the market. For example, he said, the large vacancy in Cranston’s Garden City by the closing of Borders last summer is being eyed by DSW, a shoe retailer with an existing location on Bald Hill Road in Warwick. Bed, Bath & Beyond, he added, has also shifted locations within the Bald Hill area.
Bald Hill Road has about 375,000 available square feet, or a 12.5 percent vacancy rate, according to the report. Up Route 2 in Cranston, however, is one of the market’s success stories, Chapel View, which has landed Alex and Ani headquarters, First Comp Insurance, a workers’ comp carrier; and the Chapel Grill Restaurant.
Some other positive developments noted in the report were the arrival of LF Industries, a Chinese jewelry company, in West Warwick; Hasbro’s 12-year lease of downtown Providence space in La Salle Square; and the arrival of Jordan’s Furniture and Nordstrom’s Rack at Warwick Mall.
Attracting Businesses a Challenge
The greatest challenge, said Amper, is getting businesses to come to Rhode Island. For all the location and logistic advantages the state offers, he added, problems like tax rates and cumbersome regulations can be overcome.
“If you can get somebody to look at Rhode Island and feel comfortable coming here, the tax issues can be mitigated,” Amper said.
Improving the business climate, he said, can be done through reviewing regulations and taking a regional economic development approach.
“The process has to be streamlined to make it easier for people to come in. If municipalities can streamline the permitting process, getting shovels in the ground and making zoning codes more uniform, you can market Rhode Island as a place where it’s easier to set up shop,” Amper said.
A positive trend the state should exploit, he said, is “re-shoring,” welcoming back businesses that had been operating outside the country.
Fit-Rite, a fittings company formerly headquartered in Pawtucket, recently leased a 50,000-square-foot property off Jefferson Boulevard in Warwick to return its operations from China.
“They lived here. When you have a connection to the state, you want to stay in the state,” said Amper.
Watch Sales Data in 2012
The most important real estate metric to watch in 2012, he said, is sales data.
“These are people investing in the state and laying down roots here,” he said.
A regional analysis shows a more healthy market in the northern part of the state. The report noted a 5 percent vacancy rate, 1 percent lower than last year, in the northern region thanks to its proximity and direct highway access to Boston and Worcester.
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Despite some long-term vacancies of more than two years, the Providence Metro vacancy rate has dropped from 11 to 8 percent, with help from two recent arrivals, Blue Cross and Brewers Supply.
The Central West Bay region has managed to maintain a 5 percent vacancy rate despite the lingering effects of the spring 2010 floods. The report noted that smaller, newer spaces are being absorbed by companies seeking to move up in quality space.
The recovery lags most in the South/Newport County region, with a vacancy rate of 14 percent, although plenty of potential remains at Quonset Point.
The vacancy report concludes that bringing additional companies to Rhode Island is the state’s biggest economic development challenge.
Amper said the problem isn’t so much Rhode Island missing out on opportunities, but an economic cycle which saw a number of European companies arrive in the 1980s, only to see growth slow down in the ‘90s and not pick up since.
“It’s difficult to bring companies to Rhode Island, but it’s not impossible,” he said.
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