Retail Trends: A Matter of Space

Dora Johnson is a contributing editor to Real Estate New Jersey, from which this article is excerpted.

Gary Ford is serious when he says that in Northern New Jersey, if there’s an available retail site with a sign in front, there’s got to be something wrong with the site. As an associate with CB Richard Ellis who specializes in retail deals he explains that, “If you want good retail space in a prime spot, then you’ve got to have an inside track of some sort.”

Consequently, almost any space put on the market in 2006 was quickly snapped up by retailers waiting in the wings, proving that it was another strong year for retailers in the state. “There’s tremendous demand and there’s not enough supply,” says Richard Brunelli, president of R.J. Brunelli & Co., Old Bridge. “When you have vacancy rates that are consistently less than 3% on many highways, it’s a remarkably low rate.”

Specifically, finding available retail space along the Route 46 corridor in North Jersey has its challenges with the vacancy rate dipping down to 2.58% among 140 properties surveyed, according to Chuck Lanyard, principal and director of brokerage services of the Goldstein Group, revealing a total of 113,000 sf of vacant space. Some of the biggest available blocks are the 24,000-sf former Office Max space in Totowa and the 18,500-sf former Harrow’s store in West Paterson. Both are reportedly close to having deals completed.

The pattern is the same along the highly traveled Route 23 corridor, where the vacancy rate is 3.3% among the 200 properties surveyed, encompassing over three million sf, according to the Goldstein Group. The 49,000-sf former Treasure Island store and 28,000 sf of vacancies at the Square at Riverdale are the big openings in that market.

And along the Route 10 corridor in Livingston and East Hanover, the large vacant blocks include the 56,000-sf former Levitz Furniture building in Livingston and the 23,500-sf former Office Max space in East Hanover. The vacancy rate stands at 3.66% with about 113,000 sf of vacant retail space.

And although the financial struggles of the Tower Records chain may put half dozen stores on the block, including on Route 17 in Paramus, “those will be snapped up quickly,” assures Brunelli.

In a state that is starting to sink its teeth into land-use policies that are limiting urban sprawl, it’s not surprising that there are limited opportunities for new shopping center development. “Where there is development, it’s going to be redevelopment,” says Brunelli. “That would typically be brownfields development or demolition of an office building that’s got a 50% vacancy rate and somebody can put up a small retail center. There will probably be very few major new shopping centers built in Northern and Central New Jersey in the next five to 10 years because there are very few sites.”

In East Hanover, the town opposed the development of a Wegman’s at the Varityper site along Route 10 because of traffic concerns. Recently, the town approved redevelopment zoning for a smaller commercial and multifamily project on the 37-acre site, which would include 100,000 sf of retail and a smaller supermarket, according to Steven Winters, director of the retail division at the Schultz Organization, based in Woodbridge. A 2008 completion date is anticipated.

The Schultz Organization is also representing the New Jersey Sports and Exposition Authority in their efforts to locate sites for off-track wagering facilities. The firm completed their first deal in Woodbridge and expects it to open by next spring. The facility, which will include a full-service restaurant, will simulcast races from around the world. The NJSEA has the rights to nine such facilities in Union, Middlesex, and Morris counties, according to Winters.

A development group led by Brunelli, meanwhile, encountered a quagmire in their attempts to get the Village at Manalapan through the approval process. The mixed-use project finally received final site plan approvals and expects to break ground in the first quarter of 2007. The 500,000-sf project would sit on 135 acres in Monmouth County.

“We’ve been patiently and methodically trying to get all of our approvals,” Brunelli says.The project has been proposed to include a live performing arts center, and a world-class tennis facility.

“So far there has been a sustained explosion in development,” adds Joseph D. Morris, vice president of commercial leasing and marketing for Edgewood Properties, Piscataway. “Some retailers, such as Best Buy, have even developed smaller prototypes for areas outside of highly sought regional markets to take advantage of voids in specific trade areas. Thanks to today’s technology, retailers are more sophisticated and know exactly who their customer is, where they are coming from, the type of merchandise they are buying and what kind of store [e.g. size and style] that is needed to serve them.”

Shopping centers remain a hot commodity in the state, albeit difficult to build in a tight market where development constraints are constantly putting the squeeze on proposed projects. The Schultz Organization took advantage of an opportunity to redevelop a former office building site located on Route 70 in Brick into a new shadow-anchored shopping center. The Ocean County municipality wanted the new center to be interconnected with an adjacent Target to improve traffic flow.”From a planning standpoint, it was a wonderful idea to connect them. It keeps the traffic off the major highways,” says Winters. The move added value to the freestanding property, which generated more interest from smaller retailers.”These large anchor tenants draw customers from a larger distance than the smaller tenants and therefore it helps the smaller retailer see more traffic,” Winters explains.Although the concept of shadow-anchored centers is not new, they are being perceived more positively by investors.

The traditional mall anchors like JC Penney and Sears are rethinking their mall locations and formats in the effort to reach their target markets. Last year, Sears debuted its new format, the Sears Essentials store, resulting from its merger with Kmart. JC Penney announced it will be looking outside the mall for expansion opportunities.

But malls across the country are following the old adage, “If you can’t beat ‘em, join ‘em.” General Growth’s Bridgewater Commons Mall, for example, just opened the Village at Bridgewater Commons, an open-air, 95,000-sf upscale lifestyle center across the road from the original enclosed mall. There will be 14 retailers in all, including a Crate & Barrel flagship store, Maggiano’s Little Italy restaurant, Ann Taylor Loft, bluemercury and White House/Black Market. The idea is to provide retailers with an open-air forum for their stores rather than losing them altogether. Freehold Commons Mall, at Freehold Raceway Mall in Monmouth County, too, is proposing to do the same thing.”Malls have taken a look at the big fields of parking surrounding them and have seen those as opportunities to free up some of the space to build lifestyle centers,” explains Harding. “They’re a successful type of retail development, so why not try to keep the customers coming to their locations.”Overall, “The most encouraging part of New Jersey is that there are still new projects on the books,” observes Lanyard. “Developers are still gung-ho about developing in New Jersey.”