Rhode Island’s unemployment rate decreased from 4.5% in fourth quarter 2017 to 4.0% in fourth quarter 2018. The state’s new jobs tax credits and other economic incentives continue to pick up steam: Mobius, Epiq, Infosys, VistaPrint, GE, J&J, Agoda, E-Money Advisors, and Virgin Pulse will combine more than 1,000 employees to the Rhode Island market over the next few years.
The overall vacancy rate decreased again this quarter from 11.6% in third quarter 2018 to 11.4% at the end of fourth quarter 2018. Leasing activity was healthy and asking rents continued their trend of moderate increases. After posting strong absorption in third quarter 2018 the market absorbed another 25,000 square feet (sf) in fourth quarter.
Driven by new tenants from outside the state, the Providence office market is forecasted to continue to strengthen further. The most significant development project in the state, South Street Landing, delivered on time in 2017 and is fully operational with construction of the 200-unit residential component now underway. Additionally, the first private office development on the I-195 land is being developed by Wexford with commitments from Brown University, Cambridge Innovation Center and J&J. The project is under construction and is now fully enclosed with estimated delivery in third quarter 2019. The building is already entirely committed. There are currently no speculative developments under construction either downtown or in the suburbs, and few in the planning stages, making the market ripe for further tightening and upward pressure on rental rates.
Activity levels are expected to remain high in 2019 as the office sector continues to tighten. Two separate trends are occurring and contributing to a tightening of the office supply; obsolete office buildings being converted to apartments and educational institutions purchasing office buildings for their own use. There is a limited number of new development projects under construction, which means landlords continue to gain power in negotiations, especially for Class A product. Overall the market is healthy and trending upward with moderate rent growth expected for the foreseeable future.