NORTHEAST SNAPSHOT, AUGUST/SEPTEMBER 2010

NORTHERN NEW JERSEY RETAIL MARKET

As with the overall retail industry and the economy in general, we have not seen much of a change in the Northern New Jersey retail market from 2009 to 2010. The latest figures show the vacancy rate dipped slightly, surveys show the rate dipped from 8.2 percent to 8 percent from May 2009 to May 2010. However, the 8 percent vacancy rates can be a bit misleading. The landlords are making very aggressive deals — many of these are short-term deals, with expectations that things will improve in the next few years.

Vacancy rates were expected to exceed 10 percent in 2009 and 2010. Because landlords realize it is a tenant’s market and they are eager to fill space, they are making deals they would not have considered in a stronger market. Landlords are offering lower rents, free rent, more generous tenant allowances.

With the rental rates significantly lower than in previous years, several national tenants — who in the past could not justify paying North Jersey rates — have capitalized on the weak market and have opened stores in North Jersey. Dick’s Sporting Goods is one example. I remember offering Dick’s properties in the past, and they would always pass because of the rents.

The same holds true for several of the smaller franchises and dollar stores. These tenants have been able to secure locations because of lower rents and the fact that the stronger national tenants are now on hold.

Furthermore, landlords are breaking up larger units to accommodate some of the smaller tenants and making deals with lower tier tenants, which they would not have pursued in the past.  They are creating tenant mixes that were not planned at their centers. 

There are several users or retailers that could not compete with the national tenants 18 months ago, but that has changed significantly, we have seen second-tier tenants compete successfully for prime locations.

For the last 12 months, we at NAI James E. Hanson have seen more activity than the previous 2 years. We’ve received more calls and responses from our advertising and marketing of properties. Rental rates being where they can today — probably down 20 percent from the highs of 2006 — will most likely continue through 2011 or until the economy recovers, which could be longer.

Rental rates have stabilized as the vacancy rates inch lower. We should begin to see an increase in asking rents over the next 12 months due to the increase in the number of retailers who have decided to capitalize on the market conditions and expand combined with the increase in consumer confidence.

In addition to Dick’s, North Jersey has a few other players new to the market. Bloomingdale’s is opening an outlet in Paramus on Route 4, Lowe’s is also opening a store on Route 4 in Paramus, as well as stores in Linden and Teterboro. Whole Foods and Trader Joe’s have opened stores on Route 17 in Paramus during the last year.  Like most national retailers, the supermarket chains appreciate the demographics found in North Jersey. Stop and Shop and Whole Foods are pursuing locations in North Jersey, as is Shop Rite, which will open a store in Wyckoff later this year. Wegmans has also secured a location in the Paramus market.

Wal-Mart has also targeted North Jersey. In the past, the company found North Jersey too expensive and had difficulty finding properties large enough to accommodate their footprints. However, they are looking at sites in our market at this time, specifically in the Hackensack area.

The furniture store market has added a new major player with Ashley Furniture opening on Route 17 in Paramus in the former Levitz space. Fortunoff has also opened a backyard concept store on Route 17 in Paramus.

The restaurant sector is also high on expansion in North Jersey. Panera Bread, Five Guys Burgers and Fries, Chipotle, and Taco Bell are just a few companies that have aggressive expansion plans for North Jersey.

Health clubs are another example of a nontraditional or lower tier user that has capitalized on the weak retail market. Retro Fitness, a discount health club will open four stores in Bergen County alone. Locations in Fair Lawn, Hackensack and Paramus have recently opened, and Retro will open a store later this year in Ramsey on Route 17 North. NAI James E. Hanson was involved in the negotiations on Fair Lawn and Ramsey locations.

I think because of the state of the economy, we will continue to see vacancies; however, aggressive deal-making by the landlords will prevent rates from exceeding the 2010 rates.

I do not think we are out of the woods, but with the amount of available space and how affordable the rent has become in the North Jersey market, we should see the start of a rebound. If clients ask when I expect to see an improvement or recovery in the retail market, I tell them to follow the major economic indicators. They should watch the employment and consumer spending numbers, and they should look for any indications that consumer confidence is returning. If these indicators show signs of improvement in the next 12 months — combined with the large number of retailers who plan to expand and capitalize on the ability to make favorable deals — then we should see a lot of activity and absorption of space, especially in North Jersey, where the demographics are so strong.

— Ronald A. Fotiu, vice president with Hackensack, New Jersey-based NAI James E. Hanson, Inc.

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