COVER STORY, NOVEMBER 2004

THE PUSH FOR RETAIL
Northeast retail development activity caters to growing demand.
By Kevin Jeselnik

The Northeast has always housed a strong retail environment, and as the economy improves, development activity is picking up. New retail projects are underway as retailers actively seek to locate stores in the competitive Northeast markets. Northeast Real Estate Business recently spoke with a number of retail real estate professionals regarding current development and the state of the market.

TRENDS IN RETAIL DEVELOPMENT

The Provco Group of Rosemont, Pennsylvania is developing The Shops at Villanova in Villanova, Pennsylvania. The mid-sized lifestyle center, totaling approximately 90,000 square feet, is expected to be complete in 2006. Conshohocken, Pennsylvania-based Fameco Real Estate is handling leasing responsibilities for the development.

One factor that consistently dictates the course of development in the Northeast is the high barriers to entry in most submarkets. It is no small task to receive approval to develop retail projects in areas lacking a wealth of developable land. In many states, the redevelopment of existing retail properties is allowing new retailers to enter markets where the barriers to entry have made it impossible to create new developments. Backfilling of vacant spaces has become a good re-use of retail space when it is at a premium.

According to Jon Kushner, a partner with Conshohocken, Pennsylvania-based Fameco Real Estate, many category leaders have sought to recycle the real estate ‘remains’ of now-defunct retailers. Recent retail casualties have been followed by bulk purchases, via bankruptcy court disposition, of the real estate ‘remains’ of former Caldor, Drug Emporium, Kids “R” Us, Zany Brainy and Today’s Man stores. The Northeast previously saw this with retailers such as Kmart closing locations in the region.

Many new developments are underway as well. From neighborhood to lifestyle to power centers, new shopping center communities of all types are breaking ground. There is strong demand from both retailers seeking to enter the market and consumers desiring to have national and regional stores in their towns.

As the saying goes, “where there’s a will, there’s a way,” and many developers in the Northeast are finding ways to deliver quality retail projects in areas where the path to complete a retail development can be long and arduous.

In particular, high-end retailers, typically found in lifestyle centers, and big box retailers are actively seeking to enter Northeast markets. The lifestyle center concept offers what consumers want most, says Maurice Zekaria, director of acquisitions for Lakewood, New Jersey-based Paramount Realty. “Consumers want convenience first and foremost. People want to fulfill all their shopping needs in an accessible, reasonably sized area.”

Developers in the Northeast are responding to both consumer and retailer demands. Northeast Real Estate Business takes a closer look at a number of retail developments in Northeast states.

PENNSYLVANIA

Development is steady in Pennsylvania. High-end retailers are attracted to the state’s strong demographics; lifestyle and power centers are cropping up in many of Pennsylvania’s best markets. In Pittsburgh, Developers Diversified Realty of Beachwood, Ohio, has a large power center under development. Mount Nebo Pointe is located along Interstate 279, the major north-south thoroughfare from downtown Pittsburgh to the suburbs. The 346,606-square-foot shopping complex will have a 123,000-square-foot Target and a 48,000-square-foot Sportsman’s Warehouse along with several other retail stores and restaurants. International Management Consultants began construction on Mount Nebo Pointe in November of 2003 and it is expected to be complete in the fall of 2006. Dorsky Hodgson + Partners designed the project.

Columbus, Ohio-based Stanbery Development is in the process of completing or developing a number of smaller, more accessible lifestyle projects in Pennsylvania and New Jersey. In Harrisburg, Pennsylvania, The Shoppes at Susquehanna Marketplace opened in October. The 109,824-square-foot center, designed by Dublin, Ohio-based Meacham & Apel Architects and built by Lincoln Construction of Columbus, Ohio, includes tenants such as Talbot’s, Chico’s, Bombay, Aerosoles, Coldwater Creek, Damon’s Grill and Starbucks Coffee.

In Villanova, Pennsylvania, Fameco is busy developing The Shops at Villanova, a 90,000-square-foot vertical center located at Route 30 and Interstate 476. A 20,000-square-foot gourmet food store has been proposed for the project, which is set to open in 2006.

Many developers are building smaller, lifestyle-modeled shopping centers similar to The Shops at Villanova to deliver the utmost accessibility. These new centers — in the 100,000-square-foot range — offer the same high-end retailers and services that consumers expect from the standard lifestyle center.

Fameco’s Jon Kushner notes the rise of these “hybrid” centers. “Many of these centers may not fit the newly defined criteria for a true lifestyle center — hence, ‘hybrid’ — but they do share the same high-end architectural elements and open-air feel associated with their well-heeled counterparts,” says Kushner.

Areas on the outskirts of Philadelphia’s suburbs and beyond are seeing a number of power centers under development as well. Fameco’s Jon Kushner has noticed the recent resurgence of activity along the northeastern extension of the Pennsylvania Turnpike. “Markets such as Allentown, Bethlehem and Easton are hot,” he says. “North and west of Philadelphia, markets such as Coltsville, Lansdale, Route 422 Corridor and Souderton are also experiencing growth.”

The Shops at Saucon Valley, under development by Memphis, Tennessee-based Poag & McEwen and Stanbery Development of Columbus, Ohio, will be part of the Stabler Center, a 1,700-acre mixed-use community near Allentown, Pennsylvania.

Specifically, the Lehigh Valley area, previously underserved by retailers, is experiencing substantial retail development. Near Bethlehem, Stanbery is developing The Shoppes at Lehigh Valley, a shopping community that will house a 150,000-square-foot lifestyle center and a 229,000-square-foot power center featuring Target as its lead anchor. The site also calls for five restaurant pads and additional freestanding retail parcels.

Also in the Lehigh Valley, near the city of Allentown, Stanbery has teamed with Memphis, Tennessee-based Poag & McEwen to develop The Shops at Saucon Valley. Development of the expansive lifestyle center, totaling more than 500,000 square feet on 60 acres, will be underway in spring 2005 with completion estimated for spring of 2006. The Shops at Saucon Valley will be part of the Stabler Center, a 170,000-acre mixed-use community that will feature two hotels, a business school, a golf course, several hundred residences and 6 million square feet of office space.

NEW JERSEY

New Jersey’s great population density draws retailers and developers to the state, creating opportunities and challenges alike. Widespread retail development in recent years has led to tougher barriers to entry in the Garden State, but many suburban markets, once underserved, are now welcoming retail projects into their towns.

In Mount Laurel, New Jersey, Developers Diversified Realty is developing Centerton Square. The 732,000-square-foot power center is now under construction with the first store on course to open by the end of the year. Kay Construction is the general contractor, working from the design created by CREATE Architects. A number of big boxes have signed on to occupy the center, which is located at the intersection of Interstate 295 and Route 38. Tenants will include Target, Costco, Wegmans, PetsMart, and Bed Bath & Beyond. Centerton Square will serve the densely populated southeastern Philadelphia and Central New Jersey marketplaces.

In Old Bridge, New Jersey, Stanbery Development is planning a summer 2006 opening for The Shoppes at Old Bridge. Jeffrey M. Brown Associates is building the 98,000-square-foot shopping center from a design by Meacham & Apel Architects.

Paramount Realty is in the process of constructing an expansion to its lifestyle center on Route 73 in Marlton, New Jersey. Sales volumes at the existing center range from $500 to $1,000 per square foot. The company is also redeveloping Boulevard Square, a center on Brick Boulevard in Brick Township, New Jersey.

The Shoppes at Old Bridge, Stanbery’s development on routes 9 and 18 in Old Bridge, New Jersey, is a 98,000-square-foot project set to begin in the summer of 2005. The center, built by Jeffrey M. Brown Associates and designed by Meacham & Apel, is expected to open in the summer of 2006. Some of the retailers that will occupy the center include Gap, Banana Republic, Ann Taylor Loft, Jos. A. Bank, Bensi Italian Restaurant and Chico’s.

NEW YORK

In New York, the Long Island area is experiencing an increase in retail development. In Farmingdale, Long Island, Breslin Realty Development Corporation of Garden City, New York, is developing a 260,000-square-foot power center. Tenants signed for the center include Wal-Mart and The Sports Authority. Plans also call for two restaurants, a bank pad and additional retail space. John Culmone, director of acquisition and development for Breslin, expects his company to break ground on the project, which is located on Route 110 in Farmingdale, by the end of the year.

“Retailers are looking for power centers and co-tenancies, where they can feed off one another,” Culmone notes.

Also on Long Island, the company has a 190,000-square-foot development planned for a summer 2005 construction start. The center, which will be located in Selden, New York, will include one big box and some ancillary retail.

According to Culmone, Long Island is a booming retail market right now. “This particular market, by the numbers, is probably the best retail market in the United States, bar none,” he adds. “[Long Island] can support twice as much retail as it actually has. However, there is a lack of property and appropriate zoning. As a result of the retailers’ demand to open on Long Island, you are looking at $2 million an acre in some instances. If a retailer is doing well across the country, chances are you will find its best performing store on Long Island.”

CONNECTICUT

Breslin is also developing a large power center in Stonington, Connecticut, which it plans to begin next summer. The 600,000-square-foot shopping center will have three big box retailers with additional space for other retail and restaurants.

MASSACHUSETTS

In Massachusetts, developers are re-using and redeveloping old retail properties to create opportunities for new retailers to enter the market. KGI Properties, a joint venture of The Koffler Group of Providence, Rhode Island, and Great Island Development of Boston, is developing Northwoods Crossing in Taunton, Massachusetts. The 190,000-square-foot shopping center is located on Bay Street on the site of a former shopping center that was ravaged by fires and sat vacant for many years. The 130,000-square-foot phase I of the $19 million development features a BJ’s Wholesale Club and Wendy’s Old Fashioned Hamburgers, both of which opened in 2003. Two more restaurants were recently completed, with Quiznos opening a 2,000-square-foot store in October and a Ruby Tuesday on the way. Phase II will total 60,000 square feet and will contain several junior anchors.

Also in Massachusetts, KGI Properties is developing Stoughton Retail Center at the intersection of routes 24 and 139 in the town of Stoughton. An 88,000-square-foot Kohl’s has already opened in the $15 million center, and two restaurants — Smokey Bones BBQ and Olive Garden — will open by the end of the year.

DELAWARE

In Dover, Delaware, Fameco is looking to deliver a much-needed retail project to an underserved area. Camden Town Center is a 500,000-square-foot power center that will include a 200,000-square-foot Wal-Mart Supercenter and a 166,000-square-foot Lowe’s Home Improvement Center, as well as an Applebee’s, Dunkin’ Donuts and Bob Evans. A second phase calls for an additional 80,000 square feet and several restaurant pads.

The Northeast is, and will continue to be, a hot spot for retail development. With the highest population density in the nation and strong demographics, the retail market will continue to perform strongly. The factors that attract both developers and retailers to specific markets and locations are no secret. Traffic flow, sales volume, and high household incomes drive retail development and because of this, retail in the Northeast will continue to flourish.

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