Brokerage Outlook: Rhode Island

• Rhode Island Industrial

• Rhode Island Office

Rhode Island Industrial Finan Submitted by Jeff Finan, partner with Providence, Rhode Island-based Hayes & Sherry. Posted 12-21-05. What area is your expertise? • The Greater Providence Industrial market What trends do you see presently in industrial development in your area? • Because of the lack of existing inventory, there have been some companies that have looked at build-to-suit opportunities, but no particular sector is building. Honestly, build-to-suits are rare, and speculative development is nonexistent. What type of industrial product is doing well in your area? 5,000- to 20,000-square-foot industrial flex buildings. Who are the active industrial developers in your area? There are companies like New England Construction, F.H. French Co., and Riggs & Gallagher that are excellent design/build firms, but these companies rarely build on speculation. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • Highland Corporate Park in Cumberland, Rhode Island, which is owned by the Rhode Island Economic Development Foundation, d/b/a as Highland Corporate Park Ventures (HCP), has been very successful in attracting many high-profile corporations such as Tiffany & Co, Tri-Lateral, and Retail Store Systems. As developer and manager of the project, HCP has been able to attract quality companies due to its infrastructure, proximity to several East Coast cities, and its ability to aggressively make deals in a timely fashion. Where is the majority of development taking place? Why is this area doing well? • Northern Rhode Island, due to land availability and its proximity to the Boston market. What area do you expect to be the next big industrial development market? Why? • The Route 295 belt, due to the access to Route 95 and Route 295 and because many parcels have the infrastructure already in place. There are already record-high land sales in this area. Please describe the industrial leasing activity in your area. • Sluggish. Rhode Island has always been more of a user market where companies prefer to own their own real estate. There is always a demand for leased warehouse space with 24-foot clear ceiling heights and above, but there is very little of that inventory available for lease. Please describe the industrial sales activity in your area. • The activity is strong, especially on the quality facilities. The low inventory and the high cost of building new have pushed the pricing of existing inventory to a new high, so companies are becoming more cautious as they decide what to do. Please give a measure of industrial vacancy rates. Please give a measure of available sublease space. • Vacancy rates in the state’s premier industrial areas are in the 8 percent range. Industrial sublease space is nonexistent. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? • It seems that interest rates will rise and slow down sales activity. At the same time the rise in interest rates could awaken a sluggish leasing market until rates begin to fall. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? • If quality, high-bay warehouse space becomes more available, this will have the largest amount of absorption.

Rhode Island Office Hayes Submitted by Peter Hayes, partner, with Providence, Rhode Island-based Hayes & Sherry. Posted 12-20-05. What area is your expertise? • The greater Providence, Rhode Island area, including the surrounding suburbs. What trends do you see presently in office development in your area? • There has never been a great deal of office development. It is very rare to have any speculative office development. Who are the active office developers in your area? • In downtown Providence, a joint venture between Commonwealth Ventures and USAA Real Estate is the only new office development currently underway. Michael Integlia & Company is completing two buildings while First Bristol is also completing a two-building project, both in Warwick, Rhode Island. Please name one or two significant office developments in your area. What impact will these projects have on the market? • Commonwealth Ventures and USAA Real Estate are developing the first downtown Providence office building since 1990. Due for completion in October 2006, GTECH Center is a 210,000-square-foot, 10-story office building located in the middle of the Providence Place Mall, the Westin/Rhode Island Convention Center and the Rhode Island State House. The development will comprise 26,000 square feet of retail space on the first floor, 110,000 square feet leased by GTECH Corporation and 55,000 square feet available for lease on the ninth and tenth floors. •In the suburbs, Michael Integlia & Company is completing the first two buildings (45,000 square feet and 75,000 square feet) of the Jefferson Gateway development in Warwick. The first tenants have moved in and we believe both buildings will be fully leased by the first quarter of 2006. •Service Place, a two-building development of a former General Electric facility, also in Warwick, is fully leased. First Bristol purchased the property last year on speculation and filled the two 50,000 square foot buildings with six tenants. • The office vacancy rate for higher quality space in Providence and in the suburbs is less than 6 percent. Where is the majority of development taking place? Why is this area doing well? • Mills and older industrial properties are being renovated into office and residential, fueled by the state of Rhode Island and federal historic tax credits. On top of the 20 percent federal tax credits, the state of Rhode Island enacted legislation that provides an additional 30 percent tax credit. What area do you expect to be the next big development market? Why? • In Providence, once the GTECH Center project is complete, there are no new ground-up office developments definitively breaking ground. • Struever Bros. Eccles & Rouse has been selected to redevelop South Street Station, a former power plant operated by The Narragansett Electric Company, into a mixed-use waterfront development that will be the future home to the Heritage Harbor Museum. The cathedral-like 265,000-square-foot structure located on the Providence River will be the cornerstone of the redevelopment of the proposed Narragansett Landing area. •South Street Station was built in several phases beginning in 1916. It is located in the Jewelry District of downtown Providence, a former center of Rhode Island’s prominent jewelry industry. The Jewelry District is still home to many artists and is tucked between Rhode Island’s largest hospitals and the campuses of Brown University, Rhode Island School of Design, and Johnson & Wales University and easily accessible from Route 195. •South Street Station consists of three building parts: The Turbine Hall, the 200 lb. House, and the 400 lb. House. The Heritage Harbor Museum will occupy 45,000 square feet of space in the 400 lb. House, celebrating the rich cultural history of Rhode Island with two floors dedicated to traveling exhibits anchored on its Smithsonian affiliation. • The remaining 220,000 square feet of space will contain a mix of commercial office space and residential use with supporting parking space. South Street Station features 80-foot ceilings and huge, arched, cathedral-style windows. Approximately 15,000 square feet of open, glass atrium space will run the length of the building and two cross sections. Construction is slated to begin in the summer of 2006. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • With the office vacancy rate being so low, in both Providence and in the suburbs, there are no areas that are struggling. Please give a measure of office vacancy rates . Please give a measure of available sublease space. • In Providence, the vacancy rate for the Class A and higher end Class B buildings is less than 6 percent. Rents range from $19 to $35, net of electric. There is no significant sublease space available. The largest block of contiguous office space in the city is 60,000 square feet on three floors at The Westminster Square Building, 10 Dorrance Street. • The suburbs of Providence are similar. The vacancy rate is less than 6 percent with no new major office developments breaking ground on a speculative basis. When quality space is available, the rents range from $19 to $23, net of electric. • The largest sublease space available is 30,000 square feet on two floors at 100 Highland Corporate Park in Cumberland (next to CVS/pharmacy’s headquarters). What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • Higher interest rates will equate to higher rents. Since most office development is contingent on pre-leasing commitments, the impact is not dramatic. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Unemployment is at 5.4 percent in Rhode Island. When companies have expanded from within the state or from the outside, the employers have not had difficulty filling the positions. •Additionally, employers have gone out of their way to state the attrition rate of employees is significantly lower in Rhode Island compared to other New England states. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? • Financial service companies have leased the most office space in Rhode Island in the last few years. In the future, we see the healthcare industry having a demand for space along with high-tech and bio-tech. Would you like to make any additional observations about the office market in your area? • There is a tremendous amount of residential development taking place in downtown Providence. It is one of the few cities that, through its “rebirth,” will expand dramatically from people moving back into the city. As these condominiums and apartments are occupied, we believe new office development will occur, driven by the executives who have chosen to live in Providence.