Q2 2012 Providence, Rhode Island Commercial Real Estate Economy

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Q2 2012 Providence, Rhode Island Commercial Real Estate Economy

Conditions keep getting worse in the Providence Metropolitan Statistical Area (MSA) economy, and in the State of Rhode Island as a whole. According to Current Employment Survey (CES) data from the U.S. Bureau of Labor Statistics (BLS), total non-farm payroll employment fell by 4,300 jobs (0.8%) from July 2011 to July 2012, and is now barely higher than it had been in July 2010. While the decrease of 400 jobs (0.6%) in the Government sector explains some of this, the decline of 3,900 (0.8%) in the private sector was greater. Household-based data from the BLS on the number of employed residents of metro Providence, including the self-employed, show even more weakness. It decreased by 3,530 (0.6%) in the year to July 2012, following a decrease of 4,590 (0.7%) in the year to July 2011. Unemployment, well into the double digits and far above the national average, fell only because the labor force continues to fall faster, by 9,625 (1.4%) in the latest July-to-July period. According to Moody’s Economy.com, the metro area’s population fell each year from 2005 to 2011, and is expected to edge up just 0.1% (830) in 2012. It is thus slowly losing its workers, leaving the retired and needy behind.

As in other small New England metro areas higher education, in this case Brown University, the University of Rhode Island, Providence College and the Rhode Island School of Design among others, is a key component of the economic base here. State aid and endowments have been cut by the financial crisis and the Great Recession, however, and students are already laboring under excessive student debts. Accordingly the Colleges, Universities and Professional Schools industry lost 200 jobs (1.4%) in the year to July according to CES data, leading a decrease of 400 (0.3%) in the broader Educational and Health Services sector, which had been adding jobs year-over-year in July as recently as 2011. Office-based sectors are also faring poorly, with Financial Activities employment down 400 jobs (1.2%) year-over-year and Professional and Business Services employment down 1,300 (2.1%).

There is at least some stability in the industrial sectors. Construction, Manufacturing, and Wholesale Trade lost 100 jobs each in the most recent July-to-July period, but Transportation and Warehousing added 300 (2.8%). But mere stability will not turn around long term economic weakness, which is leading to reduced buying power as the population ages and work income thus diminishes. Retail Trade employment was down 2,200 jobs (3.5%) in the latest July-to-July period, reversing what had seemed like a turnaround a year earlier. Leisure and Hospitality did gain 2,200 jobs (3.4%), led by a gain of 1,300 (12.3%) in Arts, Entertainment, and Recreation.

Investors may be waiting to see the direction of Rhode Island’s state and local governments. According to the R.I. Public Expenditure Council’s annual report: “How Rhode Island Revenues Compare,” as cited by Providence Business News, in fiscal 2010 “the Ocean State ranked 13th highest in the nation for tax burden both as a share of personal income and on a per capita basis. In fiscal year 2009, the state’s tax burden was 11th highest per $1,000 of personal income and 13th highest per capita.” Worse, the state would not rank nearly as high if the business group chose to report on state and local public expenditures, because so much of its tax revenue is taken up by its high debts and underfunded pensions. Thus, public services are declining. As in the rest of the Northeast, one tax bears an unusually large load compared with the U.S. average. “The state’s high property tax collections accounted for more than 45.0% of all tax collection in Rhode Island during fiscal year 2010. The Ocean State ranked 13th highest for total tax collections, but—excluding the property tax—the state’s tax collections were lower than the national average, as were the state’s per capita tax collections.”