Downtown lease, vacancy rates rise
March 11, 2016
The overall vacancy rate for office space in downtown Providence increased last year, in large part due to consolidation of corporations and some defections to suburban office parks.
In addition, the conversion of office buildings to residential buildings, a trend that has picked up steam in the past several years, has impacted vacancy rates because it removes some of these buildings from the total office inventory. This can drive vacancy rates higher given the smaller base, assuming the building being converted was still classified as available.
Overall, the downtown Providence vacancy rate increased to 16.9 percent at year's end in 2015, up from 15.6 percent a year earlier, according to CB Richard Ellis New England, which released the data as part of its 2016 Market Outlook.
In total, a little more than 1 million square feet is available downtown, most of it in Class B office space. Nearly one-third of the Class C space is vacant, while just 11 percent of the premier Class A building space is vacant. All of the building classes had negative net absorption in 2015, according to CBRE.
The corporate contractions that affected vacancy rates downtown included Textron Inc., at 40 Westminster St., Citizens Bank, at One Citizens Plaza, and The Providence Journal, at 75 Fountain St.
In the Randall Square district, the submarket had 15,260 square feet of negative absorption, due primarily to the move of New York Life Insurance Co. to the suburbs.
The historic building on Fountain Street that houses The Providence Journal has 128,000 square feet available, representing the largest amount of vacant space in a building downtown, according to CBRE.
The building, sold in the past year, is the subject of a redevelopment proposal that will involve the newspaper moving to a single floor of the structure.
The total Providence market is nearing 6 million square feet.
In several submarkets downtown and across all classes of property, asking lease rates increased despite negative overall absorption. While seemingly counterintuitive, this may reflect a general sense of optimism among landlords that the market is strengthening, according to Alden Anderson, senior vice president and partner for CBRE New England.
Large blocks are available in some segments, as well as smaller spaces, but that doesn't mean that every company will find opportunities to move within the city. A company that needs 50,000 square feet of contiguous space, for example, may find little availability.
"You have to peel back the layers of the onion to see where the availability is," Anderson said.
Thomas Sweeney, principal of Sweeney Real Estate and Appraisal, agreed that the overall sense of the market is optimism. Most of the moves are reshufflings, he said, from building to building within the Providence market. The movements and positive sentiment translate to upward pressure on lease rates.
"The perception is that things are getting better," he said.
In the Financial District, which is the city's single-largest commercial submarket, representing 38 percent of the downtown office market, asking rents increased in 2015 by 25 cents per square foot to $25.19 per square foot in 2015, despite nearly 60,000 square feet of negative net absorption.
In Capital Center, the district lost about 29,000 square feet of absorption but had an increase in the asking lease rate of 2.18 percent over 2014. The submarket now has the highest asking rents downtown, at $33.22 per square foot. This is the result of new office buildings and proximity to Providence Station and other transportation options.
The Capital Center district lost 29,038 square feet of occupied space, reflecting the long-anticipated consolidation of Citizens Bank at One Citizens Plaza, according to CBRE.
The Empire District, meanwhile, is nearly fully occupied. The vacancy rate is .2 percent.
One Empire Plaza, at 1 Empire St., once nearly vacant, is now leased to Roger Williams University, which will take up 76,000 square feet on completion of renovations, and the U.S. General Service Administration, which occupies 20,500 square feet. Roger Williams will double its Providence campus when the work is completed, providing space for its law school and adult learners, as well as conference and meeting space.
In the Promenade District, 1 Cedar St. and 166 Valley St. have absorbed 27,500 square feet in the two complexes. At 1 Cedar St., five commercial tenants have moved in over the past year, including Bond, an Everett, Mass.-based construction-management company that is opening its first location in Rhode Island.
The Jewelry District, which absorbed 23,550 square feet in 2015, has a vacancy rate of 4.7 percent, and asking lease rates that have increased by 4 percent since 2014.
South Main, Westminster Street and the Randall Square submarkets have a combined vacancy rate of 32 percent, according to CBRE.