By Jake Levin
How is the real estate market in Rhode Island?
Demand
Throughout 2021, demand outpacing supply characterized the Rhode Island real estate market. In September 2021, the Rhode Island Association of Realtors reported the state’s median single-family home price reached $382,500, a 39% increase so far during the pandemic.
The multifamily market saw similar figures. Months later, reports showed that the Rhode Island real estate market values were still rising. The upswing proved particularly tremendous on the East Side of the state. Per the WPRI, these coastal communities were the most attractive to buyers.
According to Jake Jordan, Financial Controller for Northeast Private Client Group, “The Providence market (Rhode Island and Bristol County, MA) has seen steady and increasing rent growth since the 20Q1, and rents have grown over 8% from this point last year. With the market dominated by the medical and educational industries, Providence historically has had strong demand. This underlying demand had kept investment flowing and saw approximately $350 M in sales volume over the past year.”
Combined with investment interest in coastal communities, the Rhode Island real estate market seems poised for another good year.
The Supply
Regardless of the product type or category, the Rhode Island real estate market is experiencing low inventory.
According to stats from the Rhode Island Association of Realtors, from November 2019 to November 2020 housing inventory decreased from 2,983 to just 1,300. The multifamily and condo markets saw comparable results.
“The number of multifamily properties listed last month was a third lower than in November 2020, as prices rose 17% from the prior year. And there were 38% fewer condominiums on the market last month than a year ago, as prices rose 17%” – The Providence Journal
Covid helped Providence’s multifamily real estate market because people have increased ability to work from home or remotely from other areas. Rent is roughly $500/month less expensive in Providence than in Boston, prompting many renters to move from the higher-priced city.
Competition
Right now, we are in a seller’s market; we are seeing increased rents and record closing pricing throughout Rhode Island real estate market. Currently, investors’ money goes farther in Providence; leading to increased competition as an influx of investors from the Bay State seeks to make deals in Providence.
Much of this demand stems from the emerging trend of out-of-state buyers competing to participate in the frenzy. In the last twelve months, out-of-state buyers represented 39.9% of all sales in Newport County. Washington County and Bristol County were not far behind with 35.5% and 31.5%, respectively.
All of this contributes to the challenge of obtaining a deal as a buyer. With many predicting another strong year in 2022 and interest rates continuing to creep up, it looks like this difficulty will only increase. Buyers will have to be swift in creative ways to get good deals in the Rhode Island real estate market.
Even though it may feel like everyone is renovating, there are still properties out there left to renovate with value-add opportunities. The older 1900s to the 1970s buildings may not make financial sense, so you might as well buy new construction.
Is real estate expensive in Rhode Island?
Whether real estate is expensive depends on many variables and your intention for the investment. To compare the Rhode Island real estate market against other real estate markets and assets, you would be wise to utilize the cap rate, which simply put measures a property’s yield in a one-year time frame.
In addition, you may want to consider the law of supply and demand, which is one of the fundamental concepts in real estate. At its core, it describes the relationship between scarcity and value. If properties increase in scarcity investors will pay more for them. The inverse is also true. According to the law, the push and pull between these two states should eventually lead to an equilibrium. Also known as the “market-clearing price, the equilibrium price is the price at which the producer can sell all the units he wants to produce, and the buyer can buy all the units he wants.”
Job Market Drives the Rhode Island Real Estate Market
With a population of just over a million, The Ocean State ranks highly for jobs in healthcare, crime and corrections, and the natural environment compared to the national average.
The link between the real estate market and the job market is clear.
Even with many out-of-state buyers driving competition, rentals always depend on tenants. Naturally, high vacancy rates will drive down prices. High unemployment is often a factor for changes in vacancy. For the most part, unemployment rates in Rhode Island have fallen back down to pre-2020 levels.
This recovery has helped create certainty in the Rhode Island real estate market, increasing prices and decreasing vacancy. In part, this upswing is due to increased demand for construction and manufacturing jobs. These jobs not only saw complete recovery but demand surpassed the pre-covid era. Rhode Island is also invested heavily in other industries. These industries include:
- Biomedicine
- cyber and data analytics
- defense shipbuilding and maritime products,
- advanced business services, and manufacturing
Billions in revenue also make their way into the state through transportation and tourism industries.
Five largest employers in Rhode Island
These companies continue to employ many Rhode Islanders.
- CVS Health
Headquartered in Woonsocket, CVS is the largest employer of Rhode Islanders and offers a wide range of positions across many professions.
- United Natural Foods
The primary supplier for Whole Foods, United Natural Foods is the biggest wholesale distributor of health and specialty food in the continent. It is a Providence-based enterprise.
- Citizens Financial Group
Established nearly two hundred years ago in Providence, this popular banking institution is still headquartered in the city and employs thousands of Rhode Islanders.
- State of Rhode Island
Employing over 12,000 people, the State of Rhode Island is one of the largest employers, generating approximately $5.5 Billion in revenue. This government institution is headquartered in Providence at the State Capital Building.
- Nortek
Nortek is a Rhode Island based HVAC manufacturer and is headquartered in Providence.
Proximity to Boston
This surge in activity may be due to Rhode Island’s proximity to other major cities such as Boston.
Properties in Boston get held by investors for extended periods. Deals are scarce, and trades are rare. Additionally, Providence suffered minimal vacancies during the pandemic. Investors noticed, and confidence in the market is strong. This scenario gives the Rhode Island real estate market an edge because it showed investors survived the urban exodus during Covid, boding well for the future.
“People are recognizing Providence is a culturally vibrant city,’’ said Steven Miller, a realtor with Coldwell Banker. “It really gives some people a lot of options in terms of being like, ‘Wow, I can get a lot of the same things that I would get in Boston in a city that’s very equal.’ It’s only an hour from Boston and three hours from New York. I mean, that’s why I moved here [from Manhattan] 15 years ago.’’
This culture is seen in the vibrant Federal Hill neighborhood that features proximity to downtown, easy highway access, and is a stone’s throw from some of the best places to eat in New England.
Our thoughts about the Rhode Island real estate market
Associates from our firm tend to agree, all of this has contributed to Providence’s substantial growth in recent years.
“Assets in the Providence submarket provide investors a higher yield than they are currently capable of finding in Greater Boston markets,” Senior Associate Tim McGeary said. “With great neighborhoods on the East Side near Brown University and Federal Hill near downtown, Providence is a market that continues to deliver rent growth and asset appreciation.” As described, out-of-state buyers have significantly contributed to the supply and demand disparity.
Where to start investing in real estate?
New construction
New construction opportunities in the east side of Providence and some of the nicer suburbs are emerging. Due to the shortage of housing, development is often a good option. Any time more units become available offers come flying in, and quick closings benefit the market considerably.
Working with a broker
Working with a commercial broker is highly recommended when pursuing CRE.
Here is why:
- Local associates have a holistic understanding of the Rhode Island real estate markets where they do business.
- If you’re a buyer, many times the seller pays for the brokers services, making this service free of charge to you.
- Brokers have expansive networks that you can leverage to save time and money.
- With brokerages handling multiple transactions for individual clients a year, their skill set for negotiations, transaction management, and completing due diligence is well developed.
Developing a relationship with a broker can be a great way to help navigate through the market and locate these value-add projects, which provides an investor an opportunity to generate wealth on their investment.
Brokers have developed skills to find current and upcoming opportunities that meet your needs and goals. They aim to complete a successful round of matchmaking between buyer and seller.
Qualified Opportunity Zones
The Ocean State is also home to 25 Opportunity Zones, designated by the U.S. Treasury, where investors can benefit from tax incentives for helping to revitalize economically-distressed communities.
Learn more about the Qualified Opportunity Zones read our blog post here. Properties like these will provide the buyer the opportunity to provide substantial improvements to the local community while being rewarded by the government with tax benefits and other perks.
Adaptive Reuse
As investors eye opportunities to expand their portfolios in 2022 and beyond, the Rhode Island real estate market offers upside in multifamily across market sectors.
It is without a doubt a frustrating time to be a buyer in real estate. Sometimes creative planning and resourcefulness can help you get ahead of the curb. While the Rhode Island multifamily market undergoes an apartment squeeze, there are always alternative strategies to get into the multifamily game.
Like many riverside towns in New England, Providence has a rich history of textile manufacturing and consequently an excess of old mill buildings. These structures undergo repurposing through a process known as adaptive reuse. Between 2004 and early 2020, mill redevelopment projects led to great things. Over 1,010 new residential units and 500 businesses give the city a welcome refresher.
After the updates are complete, these buildings tend to perform much better with their occupancy rates, providing you with higher returns and the satisfaction of contributing to the local economy in a more meaningful way.
The Takeaway: Is Rhode Island a good place to invest in real estate?
Overall, the Rhode Island real estate market was resilient and exceeded expectations despite many challenges. Demand in the single-family and multifamily submarkets shows no signs of slowing down. There is plenty of opportunity throughout the state, and it is not too late to make commercial real estate investments.
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