Richard Brunelli

There is a renewed optimism among both retailers and landlords that the worst of the recession is over. Indeed, many regional and national chains that had stopped expanding are back in the market, following the lead of more nimble franchisees and independent retailers that were quicker to act on the bargain pricing. At the same time, more prime spaces are available now compared to the slim pickings in 2006 and 2007.

Demand for space varies from submarket to submarket. “A” properties in “A” locations — such as those once occupied by retailers like Borders, Linens ’n Things, and Circuit City — will be absorbed first. Conversely, closures of Pathmark and A&P supermarkets are leaving many neighborhood centers anchorless. Other supermarkets will be reluctant to take locations that are too close to category volume leaders ShopRite or Wegman’s, leaving landlords to fill them with health clubs or subdivide them into sub-anchor spaces for retailers like Staples and PetSmart that don’t deliver the traffic of a supermarket.

Danielle Brunelli-Albrecht

Owners of “C” properties in “C” markets will continue to have the greatest difficulty, as expansion-minded retailers have typically been able to secure better locations at affordable rents in the current climate. Merely lowering the rent or offering free rent and tenant allowances won’t trigger lease signings.

Overall, the market’s current vacancy rate of approximately 8 percent for open-air centers along major highways in Northern and Central New Jersey is comparable to a year ago. Rents vary, with a typical rate for a 2,000- to 5,000-square-foot space in a center with desirable anchors ranging from $18 to $25 per square foot. Asking rates for vacant supermarkets of 45,000 to 55,000 square feet range from $20 per square foot in North Jersey to $10 per square foot in Central Jersey. Vacant stores in the 20,000- to 25,000-square-foot range are generally available in the low teens.

Of course, in a number of cases, landlords will consider a retailer’s drawing power and may reduce the asking rent to attract a credit tenant. However, over the past 6 months, there has been a slight increase in asking rents and landlords aren’t as willing to drop rents so quickly. Still, the longer a space sits vacant, the more likely the rent will be lowered.

As far as property sales, prime triple-net, single-tenant retail properties are in great demand, especially given today’s low interest rates. But with few centers for sale and very few owned by banks looking to sell, values have been pushed up. The big shake-out never happened in this region.

For new space coming to market, the three most significant projects are still works in progress: the former Xanadu project in the Meadowlands, now under contract by the owner of the Mall of America; Sayreville Seaport, a multi-million-square-foot mixed-use development near the Garden State Parkway, New Jersey Turnpike and I-287 in Sayreville; and, somewhat further along, the Hartz Mountain redevelopment of the former Ford site in Edison into a 1 million-square-foot-plus town center, where the first anchor, Sam’s Club, recently debuted.

Shovel-in-the-ground projects include the 653,000-square-foot Wayne Town Center in Wayne, being redeveloped by Vornado; Pagano Associates’ 105,000-square-foot Marlboro Commons in Marlboro, with Whole Foods opening in 2012; Pagano’s 157,000-square-foot Summerhill Square in East Brunswick, with Toys ‘R Us and Babies ‘R Us already open and the remaining stores expected to debut this fall; and the 100,000-square-foot Shoppes at Randolph, being developed by Grecco Realty, slated to open in late 2012.

New retailers entering the market include hhgregg, which opened its first Central Jersey store in Mercer Mall in Lawrenceville. Restaurants entering the market include Muscle Maker Grill, Brick House Tavern, Joe’s Crab Shack, Texas Roadhouse, Buffalo Wild Wings and Zin Burgers.

However, Chapter 11 retailers shedding unproductive locations provide the bigger news. A&P has already closed a number of its namesake and Pathmark stores in New Jersey and will likely shutter more, with a decided impact on vacancy rates because they average 50,000 square feet. Blockbuster has also closed many stores and could ultimately shed all, leaving 5,000- to 7,000-square-foot spaces that will likely be subdivided because not many retailers expanding today require that size. To date, Borders has closed relatively few locations in New Jersey, so its impact on vacancy rates should be modest.

Elsewhere, TJX Cos.’ decision to shut-down its AJ Wright chain (averaging 25,000 square feet) added more inventory to the region. Some of the stores will likely be subleased and others given back to landlords. At least one, in Paterson, was converted to sister chain Marshalls.

While the demise of Linens ’n Things and Circuit City had a significant impact in 2010, most locations in New Jersey have been absorbed by national, regional and local operators like Best Buy, Christmas Tree Shops, Home Goods, LA Fitness, P.C. Richard & Son, Top Tomato, and Unique.

For 2011, we expect significant bankruptcy announcements will come to an end, but there will still be much space to fill. However, this densely populated, high-income market remains highly desirable. We expect most prime spaces will be filled, causing vacancy rates to tighten in 2012 and 2013 and rents will begin to creep up.

If “recession” in our business is defined by increasing vacancy rates, the end of the recession is near. Expansion-minded retailers and restaurants looking to take advantage of “recession rental rates” in northern and central New Jersey are advised to act quickly.

— Richard Brunelli is president and Danielle Brunelli-Albrecht is vice president of retail leasing specialists R.J. Brunelli & Co. Inc., which is based in Old Bridge, New Jersey. 

©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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