NORTHEAST SNAPSHOT, JUNE 2008

Long Island, New York Retail Market

Siano

Despite a lackluster national economy, Long Island’s retail real estate market continues to boast low vacancies and high rents. This is not surprising given the area’s unique geography — surrounded by water on all sides — with very little room for new development. Coupled with tremendous demographics and its proximity to Manhattan one can get a clear picture of Long Island’s dynamics and why land costs are so inflated. The market is very mature from a development standpoint and developers are often forced to re-develop or recycle land rather than starting fresh. As a result, it’s very common for retailers to pay groundbreaking (suburban) rents to secure prime real estate here. 

The most active players on the Island are drug stores, banks, wireless communications retailers and restaurants. Walgreens and CVS are very competitive and will consider any prime corner location in a high traffic areas that is large enough for their use, generally 1.5 acres. CVS has relocated many of their older in-line stores to their freestanding prototypes with drive-thrus.

While banks are still aggressive in their pursuit of space, they seem to be more selective when choosing sites. Over the past few years they have been successful in snatching up almost every prime freestanding, endcap or land opportunity. Based on the scarcity of land, they are often forced to groundlease rather than purchase in order to build their prototypes. Therefore, quick-serve restaurants, for the most part, cannot compete with the numbers that the banks have been paying; in some cases as high as $600,000 per year.

The majority of the retail development on Long Island is moving east through Suffolk County following the eastward migration of Long Island’s population. As a result, While Suffolk County is three times the size of Nassau County, it has nearly the same amount of residents. In fact, according to the 2000 Census, Suffolk County surpassed Nassau for the first time with 1.5 million people to Nassau’s 1.3 million. 

Long Islanders are generally moving east to get, “more bang for their buck,” since they can purchase a much larger home with more property for the same amount they would spend in Nassau County. As people continue to move further east on Long Island, local and national retailers have followed suit in order to service this growing customer base. Developers such as Breslin Realty Development Corp., Blumenfeld Development Corp., Alrose Group, The Richmond Company and Basser Kaufman are all bringing innovative retail projects to the area. 

Two very exciting new developments under way on Long Island are The Arches and The Brookhaven Walk. Both projects are located in Suffolk County and each is set to be more than 800,000 square feet in size. 

The Arches is a joint venture between Blumenfeld Development Group, Tanger Factory Outlet Centers, and Apollo Real Estate Advisors. The 81-acre project is centrally located at the corner of Grand Boulevard and Commack Road in Deer Park. The Arches is unlike anything that exists in our market today. It is a combination entertainment, power and outlet center that will also offer a separate wing solely dedicated to luxury brands, which will be known as The Collection at the Arches. The European-themed Arches will offer a wide variety of fashion and lifestyle brands, along with restaurants and entertainment. The Arches will also feature Neiman Marcus Last Call, Christmas Tree Shops and a 16-screen Regal Cinemas. The project is currently on target to open this summer.

The Brookhaven Walk is a joint venture between Breslin Realty Development Corp. and AVR Realty. This project will be the first regional shopping center in the Town of Brookhaven. The plans call for an 850,000-square-foot, open-air pedestrian friendly retail center with an attractive architectural style. The Brookhaven Walk is conveniently located at the intersection of the Long Island Expressway and William Floyd Parkway in Yaphank. The plan includes the construction of buildings that form a horseshoe pairing anchor tenants, as well as smaller retailers and restaurants. The parking areas were designed with shoppers in mind, as all stores are conveniently accessible. There will be 10 pedestrian crosswalks connecting the shopping areas and they will be detailed with trellises, gazebos and extensive landscaping.

Both projects will provide very necessary alternatives for residents who have seemingly few options other than the traditional malls that have dominated the Long Island landscape for decades. These projects will also increase annual real property tax revenues for the local communities. According to published news report, The Arches real estate taxes are estimated at more than $5 million per year and sales taxes close to $30 million per year split between the county and state. Additionally, The Arches will create 2,000 construction jobs (building and maintenance) and 1,600 retail-related jobs.

According to the developer’s brochure, Brookhaven Walk is anticipated to generate approximately $2.4 million annually in additional sales tax revenues and will create more than 1,900 jobs for area residents and students. Both The Arches and Brookhaven Walk are adding significant infrastructure improvements to handle the increased traffic flow.

For such a vibrant market, there are relatively few new large-scale retailers that have entered the area over the past few years. As mentioned earlier, The Arches will introduce the first Neiman Marcus and Christmas Tree Shoppes locations to Long Island.  However, a few smaller retailers and restaurants have made inroads in the Island during the past 12 months. Buffalo Wild Wings recently opened their first location in Centereach, and I recently represented Panda Express in its first lease in the Central Islip Town Center, which is expected to open in October.

Another example is the Scottsdale, Arizona-based Massage Envy. I recently designed an expansion program for the clinic, which has opened massage centers in Oceanside and Commack locations, with other sites currently under development. Furthermore, we are in the process of designing an expansion program for Newport Beach, California-based company Play N Trade. The video game retailer has signed leases in Smithtown and Bay Shore, and has several others in the pipeline as well. Finally, we are also designing expansion programs for Greensboro, North Carolina-based The Fresh Market and Manhattan-based Kidville. 

For the near future, the Commack Road corridor is an area that people should keep an eye on for increased retail growth as this area is poised to take off as a retail destination. Along Commack Road from the Northern State to the north and Grand Boulevard to the south, four Suffolk towns come together — Smithtown, Huntington, Islip and Babylon. Also along this stretch, there are several major projects approved or nearing approval. In Smithtown, the 377,000-square-foot PJ Venture II project was built in late 2006 just off Commack Road at Crooked Hill Road. This 43-acre big-box development includes such well recognized retailers as Wal-Mart, Kohl’s and Home Depot. 

Just south of the Long Island Expressway in the Town of Islip is the future location of Jerry Wolkoff’s Heartland Town Square. The Heartland Town Square is a self-contained mini-city set on 460 acres of the former Pilgrim State Psychiatric Center in Brentwood. This mammoth mixed-use development will include 9,000 residential units, 1 million square feet of retail space and 3 million square feet of office space. The third and final retail project located just to the south in the Town of Babylon is the aforementioned The Arches at Deer Park. Backers of these projects point to the increased jobs and tax revenue, as well as additional shopping opportunities, while others are concerned about the traffic congestion and quality of life in the area.

— Jayson A. Siano is a first vice president in CB Richard Ellis’ Long Island office

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