NORTHEAST SNAPSHOT, MARCH 2007
Long Island Retail Market
Long Island continues to be the “place to be” when it comes to retail development in the New York Metro area. The combination of excellent demographics, income levels, density of population and higher than average unit volumes across all lines of the retail sector drive retailers and developers to scour the market for any available opportunity. Various factors have pushed developers to re-think their approach to Long Island, including more mixed-use and lifestyle type developments.
The industrial sector is being sacrificed more and more for repositioning as retail properties, reflecting a shift in highest and best use among such properties for return and economic viability. In addition, in Long Island, retail is trending toward more central community developments, which basically create a “small town” consisting of commuter access as well as residential and shopping components. A couple of new shopping center developers/owners have broken into the market with acquisitions of existing centers, but it remains to be seen if they intend to pursue new development. The most active retail segment is still drug store chains and banks, although the banks have certainly taken over the lead position in this regard.
There have been several retail developments in the area that exemplify the transformation from an industrial laden area to retail, ultimately changing the respective markets substantially one way or another. The Tanger Outlet Center in Deer Park coupled with the mixed-use redevelopment of the 452-acre former Pilgrim State Psychiatric Center, named Heartland Town Square, just to the north, is the lynch pin of the eventual transition of the mostly industrial area to retail. Taubman’s Mall at Oyster Bay is an upscale mall development, which again has pioneered development to kick off the repositioning of the surrounding industrial property use. A lifestyle component at Smithaven Mall in Lake Grove is the first lifestyle type development in Nassau and Suffolk counties. This new development heralds a new consumer-centric shopping experience versus a goal oriented shopping trip.
Brookhaven Walk is an 805,000-square-foot open-air center in Yaphank and the first regional mini-mall development east of Smithaven Mall. Destination shopping now no longer means heading west for the tremendous population of consumers east of Lake Grove. As Bridgehampton Commons did years ago, it will open the eyes of retailers and developers to the viability of larger retail developments in the western part of eastern Suffolk County.
The Nassau Hub consists of 77 acres surrounding the Nassau Coliseum and Marriot Hotel in Uniondale. This billion dollar mixed-use development in the very heart of Nassau County will have long reaching effects on the economic vitality of its surrounding towns. Early in the proposal stage, it is an outstanding opportunity for “small town” development due to its proximity to all services, transportation, recreation, schools and arterials. Enterprise Park at Calverton, the 2,900-acre former Grumman facility, is being developed in a mixed-use fashion. The current proposals include an amusement park, a large senior living component, industrial and office space. The eventual development of this property will have a huge and lasting impact on the surrounding communities.
Retail development on Long Island is not a function of “where do we want to go” but “where can we go.” The constraints of geography, economic and physically viable land availability and the oppressive effects of locally based zoning and approval control have all conspired to constrict development, increase competition and drive the cost of doing business through the roof. For these reasons, the entire market is subject to retail development pressure. Being a mature, geographically challenged market as far as land size, development on Long Island is not geared toward new centers, but repositioning, expansion or renovation of existing stock.
The developments highlighted above are the most important of the new projects. As always, developers and owners want the national players who lead their segment or their nearest competitor. They are also always on the lookout for the “next big thing” to bring to their center. Generally, no owners or developers in the Long Island area are making decisions based upon the concern of not being able to find a retail tenant, at least for the time being. However, there are signs that this may change in the next few years. In addition to retail development, Long Island is experiencing an influx of additional hotel and hospitality players.
Submarkets to watch for future retail activity are Route 110 in the Farmingdale market, as it has been targeted for retail development and Class A office space. As the retail use stretches off of Route 110, Route 25 east and west of Route 110 will most likely experience the redevelopment and repositioning of various low-return property uses. Testament to this is the recent announcement that Lowe’s Home Improvement Centers is in contract to purchase the long available Huntington Townhouse property for a reported $35 million. Markets that have the potential for redevelopment toward “small town” use, such as those proximate to train stations and arterials will also begin to see increased activity. Examples of these areas are Ronkonkoma, Patchogue, Smithtown, Port Jefferson and Hicksville.
Rental rates have continued to increase across Long Island, with the larger increases happening from eastern Nassau County and to the east. The range of fair market rental rates on a triple-net basis across Long Island from east to west and south to north, respectively (excluding the Hamptons on the east end), range, on average, from the low $20s to the high $60s per square foot. Growth continues to be strong in all markets and there continues to be more retailers than space available, especially in the restaurant segment. The current trends should continue with some moderation as the overall market moderates and corrects itself. Long Island has always shown itself to be the last in, first out when it comes to market downturns and there is no reason to believe this coming correction will be any exception.
— Phillip Perri is the senior director of Corporate Retail Services for Suttons & Edwards/TCN Worldwide
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