Taken from:
"http://www.projo.com/business/content/projo_20060806_office06.1a8881f.html"
Building up downtown
After a long drought, the Providence market is about to be flooded with new office space
01:00 AM EDT on Sunday, August 6, 2006
BY ANDREA L. STAPE
Journal Staff Writer
The plan calls for spending $200 million to build 496,000 square feet of office space in a 22-floor tower.
The Procaccianti Group last month unveiled an ambitious agenda to replace the former Providence police and fire station, a downtrodden building with broken windows and a broken spirit that it bought from the city for $3 million. If the La Salle Square tower comes to fruition, it will be the largest office building in downtown Providence.
At the same time Procaccianti is proposing the new office tower, it is renovating 33,000 square feet of now-vacant office space on two floors at 111 Fountain St., across from the Rhode Island Convention Center.
And about 55,000 square feet of brand new office space is up for lease in the city's first office building in 16 years -- two floors GTECH Holdings Corp. won't be using in its new headquarters going up across from the Providence Place mall.
After an extensive drought, it seems like the Providence market is about to be flooded with new office space.
The surge addresses a need, say local commercial real-estate experts, since over the past few years there has been interest from large tenants in moving into downtown, but no contiguous office space that could accommodate a big, relocating tenant.
The vacancy rate for Class A, or high-end, office space in Providence is low, about 12 percent, according to a report by Hayes & Sherry, a Providence-based commercial real-estate firm. It's Below the national vacancy rate, which was about 13.6 percent at the end of last year, according to the National Association of Realtors.
However, expressing interest in moving downtown and making a commitment to lease 50,000 or 100,000 square feet of Class A office space are two different things.
The question remains: Can Providence actually draw new office tenants with a need for a large amount of high-end space into the city?
"I do think that if there were options that were coming online, there would be more people taking a serious look at Providence," said Peter Hayes, a broker with the Providence office of Hayes & Sherry.
BUT JUST having new space may not be enough to seal a deal.
It took a lucrative 20-year lottery contract with the state to convince GTECH to move its corporate headquarters, and about 700 people, from West Greenwich to Providence. The company plans to move into the building, on the corner of Francis Street and Memorial Boulevard, at the end of the year, taking over all but two floors.
For the Procaccianti tower to become a reality, there will have to be a similar situation, according to local real estate experts.
"Clearly, the Procacciantis have a challenge to put a tenant in the building -- ordinarily these buildings don't come out of the ground without a tenant," said Charles Francis, president of C.B. Richard Ellis Rhode Island, a commercial real estate firm.
In today's market, developers just can't afford to build speculative office buildings, said Dick Galvin, president of Commonwealth Ventures, one of the co-developers of the GTECH office building.
While Providence has seen a resurgence in recent years, with high-end condominiums being built and additional hotels dotting the skyline, the market still isn't so red-hot that developers are willing to take the risk that they could get stuck with an empty building, he said.
"Unlike other markets, there's not going to a be a rash of new announcements -- you're just not going to see a rash of spec office space," said Galvin.
In addition, the high cost of construction materials and fuel is putting a damper on speculative office construction nationally, according to the Realtors group.
Procaccianti, however, says it's "bullish" on the Providence market. The company points to the condos going up in the city -- some of which the company is building just a block away from its proposed office tower -- as magnets for business.
"There is a vitality in the city. I think there are opportunities where smart-thinking, green-thinking companies want to get close to the universities and the wealth that is in the city," said Tom Niles, executive vice president of development for Procaccianti. "I'm not saying it's going to be a neutron wave, but I think it's going to be a slow, steady wave."
For now, trends in the industry are pointing to additional interest in downtown office space after years of companies choosing sprawling suburban office campuses over urban life, according to regional real estate experts.
Over the past couple of years, Boston has seen a number of companies -- including the consulting firm Accenture and publishing firm Pearson Education -- move back to the city from the suburbs, said David Fitzgerald, executive vice president and partner of C.B. Richard Ellis in Boston. During the second quarter of 2006, vacancy rates for office space in downtown Boston were under 10 percent, according to a report by C.B. Richard Ellis.
"So many young professionals like to live in an urban environment. So the businesses that had moved to the suburbs, if they are competing to get the best people, are saying, 'Let's move back' " to where the employees are, said Fitzgerald.
In addition, smaller companies are giving up office space in the city's financial district to move to Back Bay to be closer to where people are living, he said.
"The high-end hedge funds and some of the money managers have also chosen to go to the Back Bay and I think that's because a lot of the empty-nester owners of these businesses are living in the city and are choosing to walk to work," said Fitzgerald.
In Providence, Commonwealth Ventures has seen businesses filling up smaller amounts of space in One Financial Plaza, a building the company co-owns just blocks from GTECH headquarters. Recently, Commonwealth has signed leases with Oracle and Oppenheimer, said Galvin.
Plus, Fidelity Investments recently spent $13.9 million to renovate a vacant office building next to the Providence train station and moved 325 people into 113,000 square feet of space. Galvin's company on Wednesday bought the building for $20 million.
"In the Northeast, it's all a function of labor pool and jobs," said Galvin. "I think there is a growing trend towards people wanting to be in urban areas so they can access all the amenities of urban living," which will cause companies to follow, he said.
WHAT HAPPENS with the two floors Galvin is leasing in the GTECH building and the two floors at 111 Fountain St. over the next year or so could give some insight into what may happen with the proposed Procaccianti tower.
Galvin is looking to lease about 55,000 square feet of office space on two floors, at the top of the new modern, glass GTECH building downtown. The lease rate for the two top floors of the building will be the most expensive on the Providence office market, $38 and $40 a square foot, according to a study of Providence's commercial real estate market by Hayes & Sherry. GTECH will be the primary office tenant, and will have its name on the building.
Commonwealth Ventures does not yet have a taker for the top two floors, although it is in preliminary discussions with several parties, said Galvin.
"We want to have someone in the first or second quarter of next year. . . We've got to get GTECH in and happy," said Galvin.
Procaccianti doesn't have a tenant for the yet-to-be-renovated Fountain Street property either, although it is talking to some in-state tenants, said Ralph Izzi, spokesman for the Procaccianti Group.
The company also sees a market in businesses interested in moving their people out of a variety of buildings across the city into new space in one main property, said Niles.
But while Procaccianti says it's bullish, the development company has also been careful to give itself plenty of time to find a tenant. It doesn't plan to finish the proposed tower at the former public safety site until 2010.
"For years, we have had no new product [in Providence]. Now, with GTECH and Procaccianti there will be competition to see if these buildings fly," said Francis. "We have a better shot than ever of getting someone from out of state with all that's going on."
I can't imagine there being a market for so much upperscale office space. There have been previous proposals for the old police/fire station including the dreaded hotels and condos and they've all seen the shredder. The only possible way I could the demand would be pulling companies from Boston with the appeal of cheaper space and a lower cost of living, except RI has a higher sales tax.
Anyone else have thoughts on this?
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