When it comes to an economic recovery, it is somewhat early in the game. I tell my clients we’re still in the third inning. High unemployment, high government deficits in all communities and a lack of confidence in the economy are presenting some challenges to the economy.

That being said, Rhode Island’s retail vacancies have dropped 30 basis points: from 7.3 percent in the first quarter of 2010 to 7 percent in first quarter 2011 due to no new construction. However, very little absorption is projected in the year to come.

Investors are still interested in buying in core markets like Providence, Warwick and generally well-populated areas but the general requirement is for value-add properties that can be purchased at a substantial discount. Single-tenant triple-net lease deals sell quickly if well priced. Cap rates are still low due to lack of availability.

Values over the past year have held for some prime, well-located properties only due to the lack of inventory available for sale. In June 2010, USAA Real Estate acquired Wampanoag Plaza, a 230,000-square-foot retail center with 11 tenants in East Providence. Ocean State Job Lot purchased Elmwood Plaza, a 112,795-square-foot center in Cranston, in first quarter 2010 for $3.2 million.

There have been no major construction projects other than the renovation of the Warwick Mall, which suffered large water damage due to extensive flooding, in the spring of 2010.

Demand is slow and vacancies may increase slightly in the second half of 2011. Logic tells us that if the local and regional economies do not grow, then the demand will also not grow. Short-term concerns include spiking oil prices that have exceeded $100 a barrel. These rising fuel costs could severely hamper consumer confidence and spending in Rhode Island and throughout New England.

Average retail rental rates in Rhode Island are just under $11 per square foot on a triple-net basis with available space staying on the market for 150 days. This is an improvement over the beginning of 2010, when the average time on the market was more than 400 days.

Unfortunately, we do not expect to see much improvement in 2011. In fact, there may be additional store closings due to high unemployment, rising costs and continued layoffs by employers.

Geographically speaking, Rhode Island sits in a unique location between Boston and New York City. It is known for its rich history and tourism-based economy. Local governments need to do more in the area of creating incentives for business growth by reducing taxes and encouraging companies to expand, thereby increasing jobs. There is a strong academic support system and an educated employee base that continues to migrate over state lines for jobs. Once these jobs show up in Rhode Island, the growth in the retail property sector will follow.

There are a number of opportunities for redevelopment in all areas of Rhode Island, including Providence and its neighboring cities and towns. Retail is a function of disposable income. High unemployment — driven by companies shutting down or relocating to other states or countries — makes for a less-than-bright outlook in Rhode Island’s immediate future.

— Samuel Thomas is a senior associate with Marcus & Millichap’s Providence, Rhode Island, office.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.

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