At least one landlord in Providence, R.I. (above), is trying to lure tenants priced out of Boston’s hot office market.
Priced out of Boston’s skyrocketing office space? Consider Providence.
At least one commercial property owner insists that the alternative to $50-$90 per-square-foot rents in the Hub is only an hour away in the Rhode Island capital. D.L. Saunders Real Estate Corp. placed an advertisement in a Boston weekly newspaper boasting the “best deal in Boston is in downtown Providence.” The ad offers space for $16 per square foot within walking distance of the Rhode Island State House and the commuter rail.
But is there any evidence that price-weary tenants are going south?
“I wish it were the case but I don’t see it yet,” said Karl F. Sherry, a partner at Hayes & Sherry, a Rhode Island-based commercial real estate brokerage. “I haven’t seen a major company move from Boston to Providence because rents are cheaper here.”
Privately, brokers say the property that Saunders owns at One State St. is a hard sell. They say the building’s management team is located off-site and tenants have complained that the facility lacks essential services.
Neither Donald nor Lisa Saunders of D.L. Saunders Real Estate returned repeated calls and e-mails seeking comment.
Some Boston-based companies, including the law offices of Nixon Peabody LLP, have opened satellite bureaus in Providence. But those offices have more to do with having a regional presence in Rhode Island, according to Sherry.
The idea to lure office space seekers to Providence comes as Boston’s rents are rising. From July through September, landlords increased their asking rents 46 percent in Boston, according to Jones Lang LaSalle, the global real estate firm that tracks such prices. As rents soar, office vacancy rates are at their lowest level since 2001.
Boston’s Back Bay neighborhood saw the biggest rent hike in the third quarter as the average asking price for Class A office space reached $60.36 per square foot, up from $39.90 per square foot last year, a 51 percent boost, JLL reported.
Despite some of the biggest rents in years, landlords are still giving some concessions and companies are not fleeing Boston, according to brokers.
Jay Fluck, a broker at CB Richard Ellis/New England, said despite the dramatically lower cost of space in Providence, he is not seeing a flight of Massachusetts companies. Providence’s per-square-foot rents range from $15 to the mid-$30s.
When New England-based Dexter Shoe Co. did a regional search for new quarters, they considered Providence but chose a location north of Boston. “We have not won a big tenant yet,” Fluck said. “I haven’t made a deal.”
That said, the bigger the spread between rents in Boston and Providence, the more opportunities for Providence landlords to attract Boston firms, Sherry noted. “I don’t see major companies moving into Providence from Boston because rents are cheaper,” he said. “But if Boston rents keeps rising and reach $100 per square foot, Providence has lots of good space for $25 [per square foot].”
‘Institutional Investors’
Providence has 6.2 million square feet of office space. Of the 117 buildings tracked by Hayes & Sherry, 83 are Class B properties. The overall vacancy rate is 10.5 percent or 654,758 square feet, about the same as last year. But the Class A properties are seeing vacancy rates closer to 7.5 percent.
Unlike Boston, only a pair of buildings in Providence has per-square-foot rents in the $40s. They include GTECH, the 10-story glass and metal building at the corner of Francis Street and Memorial Drive and Center Place at 50 Park Row West, adjacent to Providence’s Financial District and the Amtrak/MBTA train station. The rest of the Class A properties are priced from $25 per square foot to $32 per square foot, Sherry noted.
Still, vacancy rates have fallen slightly because institutions including Brown University, the Rhode Island School of Design and some of the hospitals are running out of space on their campuses. In response, the nonprofits are moving into downtown Providence and taking office space off the market.
“The good news for us is that local companies are growing and there are more and more people who are interested in investing in Providence,” Sherry said. “Today, we have institutional investors who are parking their money in downtown building. They are interested in investing in the city because it’s turned around.”
Still, Providence does not have a single office building in the construction pipeline. In addition, the downtown still has a number of parking lots, something that is disappearing on Boston’s landscape to make way for new construction.
“No one would build an office building on spec in Providence because the demand is just not there,” said Sherry. “And we need the parking lots.”
Not since the dramatic transformation in the 1980s of Lowell’s mills into condominiums, performance centers and a national park has a New England city enjoyed such a rebirth.
Under the administration of former Mayor Vincent “Buddy” Cianci, Providence underwent a renaissance in the 1990s. Public and private dollars reshaped the downtown, giving the city beautified riverbanks, an arts district, additional housing, a shopping mall, and an ice skating rink. One of the city’s biggest attractions is WaterFire, an artist installation of bonfires just above the surface of the downtown waterways.
Cianci was convicted of racketeering and served five years in federal prison after federal prosecutors alleged a conspiracy by city leaders to accept bribes in connection with redevelopment projects.
