Multi-family, residential, industrial and retail markets powering Rhode Island real estate - by Peter Scotti

Market conditions in Rhode Island range from a very robust residential market to a somewhat moribund office market. The retail market appears to be strengthening and the industrial market is stable to improving. Residential investment properties are in great demand, with minimal inventory.

According to Rhode Island Multiple Listing Service statistics, home prices are still below the peak recorded in the first quarter of 2006. Currently the median price of a single family house is $270,000 -- up 11.7% from a year ago.

Providence’s East Side, Barrington, Bristol, East Greenwich and Lincoln/Cumberland have experienced significant appreciation in the upper end of the market.

This is the way Sally Lapides, founder of Residential Properties Inc., one of the state’s most successful residential brokerage companies, sees the current housing market: “The overall residential market is strong this year. Suburban communities that have highly rated school systems are particularly high in demand. The inventory is down, and sellers are reticent to put their houses on the market before they find somewhere to live for fear that they will be ‘out on the street’ without a house to buy.

“The city of Providence, particularly the East Side, is hot below $750,000. Houses that have been renovated recently and priced right are selling fast and experiencing multiple bids. The high end of the market has been hot in Barrington, Bristol, Providence’s East Side, Cumberland, East Greenwich and in many coastal towns. The second-home market has improved this year, as has the demand for multi-family homes.”

High-end single family housing ($2 million plus) has seen fewer transactions in the past year, 15 to date vs. 26 for the same period last year, but with an average price increase from $2.5 million last year to $2.6 million this year.

Multi-family (2-4 family) sales statewide showed increased activity and pricing, increasing from 286 sales with a median price of $139,000 last year to 300 sales and a median price of $166,000 today.

Sales of 2-4 units in the East Side and Elmhurst/Mount Pleasant areas of Providence, where most student housing is located, showed stable activity but increased pricing with the median sales price on the East Side rising almost 25% from $330,000 one year ago to $411,500 today. Elmhurst/Mount Pleasant reported an almost 20% increase in pricing.

Thanks in large part to tax incentives and other public investments, there are more than 1,000 new apartments planned in the Providence area. Many of the planned units are located in former office or commercial buildings that were vacant or under utilized. 32 Custom House St. is an example of such repurposing. The five-story mercantile building has been renovated and now includes 10 high-end residential apartments and a ground floor retail space that is set to open on August 1, 2016. The development received Rhode Island historic tax credits and a tax-stabilization agreement with the city. Commercial buildings in the process of conversion include the Iron and Russell Building and the Union Trust Building on Dorrance St. (conversion of office space on the upper floors into residential apartments there has already begun).

Multi-unit residential development in surrounding areas such as Warwick, Pawtucket and Woonsocket also include the renovation of existing commercial space into residential uses. Pontiac Mills in Warwick, constructed in 1863, has long sat vacant. The property is currently being renovated and converted. When it is completed, it will hold 127 residential units and retail and restaurant space. Like many conversion projects in the state, it was granted federal and state tax credits.

Redevelopment of over 500,000 s/f of Class B and Class C mercantile buildings in the Providence CBD is the primary reason that vacancy rates in that sector have declined.

The Providence CBD office market continues to limp along with Class A vacancy in the 10% to 12% range, stable to slightly increasing rents and very few if any new tenants entering the market. Most activity is the result of limited expansion and a reshuffling of existing tenants.

Thomas Sweeney, SIOR of Sweeney Real Estate, notes that “CBD office is filling up slowly with low but steady demand and vacancy decreasing as many buildings are being redeveloped for residential uses.”

The recent announcement that General Electric will be opening a new digital innovation office in Providence with an initial employment of 100+ is very positive and is apparently the result of governor Gina Raimondo’s hands-on effort to attract new business to Rhode Island.

Peter McNally, executive director of the I-195 project, reports continuing interest from a variety of regional and national corporations that are being wooed by the Raimondo administration and hopes to be able to leverage the recent announcement by GE to show that Rhode Island is open for business.

Although the South St. landing project is progressing nicely, we don’t expect any real forward movement on the I-195 project until the proposed infrastructure improvements, the Garrahy garage, the pedestrian bridge and the waterfront park are well underway or complete.

State senator Joshua Miller (D-Cranston), who chaired the parking garage study committee, expects that by the end of 2017 the project will be near completion.

The West Bay suburban office market with Class A rates at $23-$24 per s/f and Class B rates at $16-17.50 per s/f is in high demand with minimal vacancy. According to Leeds Mitchell III, vice president at MG Commercial, “The tenant is no longer in the driver’s seat.” 

Although rates are strong and vacancy low, market confidence has not reached the point to spur speculative development.

The Northern Rhode Island suburban office market vacancy rate is 8%, with Class A rates at $19-$21 per s/f and Class B rates at $16-$17 per s/f. Leasing activity appears to be limited to some existing tenant expansion and typical reshuffling. Like the West Bay, there is no speculative development.

The East Bay office market is stagnant, with vacancy in the 17% to 20% range and flat rents. On a positive note, Michael Integlia Jr. of Integlia Companies, one of the state’s premier office developers, is constructing a 90,000 s/f Class A medical office and surgicenter for University Orthopedics at Kettle Point Ave. on the East Providence waterfront.

The industrial market segment appears to have recovered to very near its pre-recession pricing. The market has been historically driven by facilities in the 20,000-40,000 s/f category, and pricing for facilities with those dimensions that are in good condition is in the $50-$60 per s/f range, with corresponding rents at $5-$6 per s/f.

The brightest spot in the industrial market segment is Quonset Point where the quasi- public Quonset Point Development Corp. led by director Stephen King has had tremendous success with a 100,000 s/f addition by Electric Boat kicking off its 5-6 year expansion plan. Four other new buildings, with a total of 265,000 s/f, were completed in the past year and there are several other properties being negotiated. Quonset Point is most unusual in Rhode Island since the park is truly “shovel ready” and construction typically starts within 90 days of making a deal.

The hospitality market is buoyant. Hotel occupancy in Providence is 68.6%, up 1% from last year with a 5.7% increase in room rates. Warwick also posted a 1% increase in occupancy and a 4% increase in room rates.

Restaurant sales are projected to reach $2.3 billion, up 21% over the past four years.

CNBC recently rated Rhode Island as the worst state for business, rating infrastructure #50, economy #45, business friendliness #39 and cost of living #39. CNBC rated the workforce at #23, the quality of life #24 and education #20 -- but the overall rating was dead last.

As long as Rhode Island is perceived as being unfriendly to business with a government that would rather regulate then invest in its infrastructure, it will continue to lag behind the region and the nation. If Rhode Island can overcome its image as a hard place to do business by following the example of Quonset Point, the state’s natural beauty, underrated quality of life and fine educational facilities will propel it to the top of the list.

Peter Scotti, MAI is the president of Peter M. Scotti & Associates, Providence.