The vacancy rate in retail properties along northern New Jersey's six major shopping corridors reached 8.0% in April, as numerous 'big box' spaces that went dark in 2008 and 2009 have remained empty and small space absorption faltered in the wake of tight credit markets, according to R.J. Brunelli & Co., LLC. This compared with a 6.6% vacancy factor in the firm's previous study, which was conducted in February 2009. Of the six highways, only one--Route 4--saw its vacancy rate decline from 2009 levels.
Effective with this year, the Old Bridge, N.J.-based retail real estate brokerage shifted the study period for its annual surveys of the northern and central New Jersey retail real estate markets to April from February. "Given the fact that retailers often wait until after the holiday season to begin liquidating failing stores, we felt that conducting the study in April would give a better, 'post-shakeout' view of the market, going forward," explained Richard Brunelli, president of the firm.
The firm's twentieth annual study of the six-county northern New Jersey market found 2.27 million square feet of vacancies in the 28.53 million square feet of space reviewed along the six corridors, with availabilities seen in 174 of the 816 properties evaluated. This compared with 1.84 million square feet of vacancies in 27.96 million square feet of space in the 2009 study, in which openings were seen in 118 of the 808 properties reviewed. For nine of the prior 10 years, the region's rate had stayed in a very narrow range of 2.0% (2003) to 3.6% (2008), before escalating to 6.6% in 2009.
R.J. Brunelli's 2010 study reviewed shopping centers and freestanding buildings exceeding 2,000 square feet along State Highways 4, 10, 17, 22, 23 and 46/3, and certain intersecting arteries in Bergen, Essex, Morris, Passaic, Somerset and Union counties. Freestanding restaurants and auto service facilities are also included, while enclosed regional malls and centers under construction or redevelopment are excluded.
Among key findings from this year's survey:
After driving 58% of the vacancy factor in the firm's 2009 survey, big box spaces exceeding 20,000 square feet accounted for approximately 973,000 square feet, or 43%, of the region's total vacancies.
Of the vacant big box space, approximately 814,000 square feet, or 84%, came from stores that were dark in the 2009 survey--and, in some cases, have lingered from prior years. The remaining 159,000 square feet, or 16%, emanated from new vacancies along the six corridors.
Eight vacant big box spaces totaling approximately 273,000 square feet were absorbed during the past year.
The results underscore the difficulty landlords are experiencing in attempting to fill big box vacancies arising from the earlier bankruptcies or closures of such major chains as Circuit City, Linens 'n Things, National Wholesale Liquidators, Levitz, Comp USA and Home Depot Expo, as well as selective closings by chains like Pathmark, Office Depot and Office Max," said Mr. Brunelli. "While a number of national and regional chains have stepped up to the plate and snapped up some of these prime locations at favorable rents, it could be some time before this glut of big box inventory is fully absorbed."
He pointed to Bed, Bath and Beyond, Best Buy, Christmas Tree Shops, Dick's Sporting Goods, P.C. Richard, Ramsey Outdoor, Unique Thrift, furniture retailers Ashley and Bob's, and R.J. Brunelli clients Sixth Avenue Electronics and Workout World as companies that have seized opportunities in vacant big box spaces in various New Jersey markets. The big box and mid-sized space markets on and off the corridors also got a slight lift within the past year from the return under new or original ownership of four names that had gone through bankruptcy: Huffman Koos (with five of its nine showrooms and outlets located in northern New Jersey), Fortunoff Backyard Store (two of its seven locations in the region), Marty's Shoes (nine of its 14 stores in the region) and National Wholesale Liquidators (one of its seven stores in the region).
Mr. Brunelli said that the glut of big box inventory has been compounded by ongoing struggles of independent retailers, particularly operators of small furniture stores or other home furnishing shops whose business is closely tied to the moribund housing market. "Ordinarily, we will see new independents step in where others fail, but the credit crunch has clearly thwarted the ability of many entrepreneurs to launch new retail or restaurant concepts or expand their existing ones, exacerbating vacancies up and down the highways," he explained.
"Still, a number of franchised and company-operated chains with unique, lifestyle-oriented concepts have managed to buck this trend and take advantages of unique opportunities to get into small and mid-sized spaces at very attractive rental rates," Mr. Brunelli continued. Within the firm's tenant rep circle those expansion-minded chains include such names as Ulta, Massage Envy, Muscle Maker Grill and European Wax Center.
Looking ahead, he commented: "Although all signs suggest that the economy has bottomed out, the absorption of commercial real estate--and especially retail real estate--is traditionally a lagging indicator. Against that background, we expect vacancy rates to hold steady or decline slightly through the remainder of this year and into the first half of 2011, with absorption accelerating in 2012. Several years later we could see a return to lower rates seen in 2006 and 2007, when the vacancy factor for the northern New Jersey market hovered around 3%."
Results for the individual northern New Jersey roadways are as follows:
Route 17. After jumping to 7.0% in 2009 from 4.5% in 2008, the vacancy rate along the 15-mile corridor extending from Paramus to Mahwah climbed again to 8.7% this year--well above the 10-year low of 1.5% set in 2002.
The firm's 2010 study found 427,317 square feet of vacancies in the roadway's 4.93 million square feet of space. Twenty-nine of the 143 properties reviewed had closed stores, up from 19 a year ago. However, the bulk of the availabilities were clustered in the heavily-retailed Paramus area. The vacancy rate stood at just 2.8% in properties in the section north of Paramus, with 27,400 square feet available in 979,000 square feet in the section comprising Upper Saddle River, Ramsey and Mahwah, where very limited retail zoning has kept a lid on development, Mr. Brunelli noted.
In positive developments at Paramus properties, Dick's Sporting Goods leased the 57,000-square-foot former Linens 'n Things superstore at Paramus Towne Square and Fortunoff Backyard returned in 17,000 square feet in a small strip center. Conversely, the vacant Circuit City, Home Depot Expo and Comp USA spaces in Paramus (aggregating 161,000 square feet) remained unclaimed. Those availabilities were exacerbated by closings of two other Paramus big box stores: Best Coats Factory and K&G Menswear, adding 50,000 square feet to the inventory.
Route 4. As the northern region's only corridor to show an improvement, Route 4 saw its vacancy rate decline to 6.8% from 8.2% in the firm's 2009 survey and 10.1% in 2008. Over the past 10 years, the vacancy rate in the three-mile area between River Edge and Paramus has ranged from a low of 1.7% in 2003 to 10.6% in 2005.
All told, R.J. Brunelli's 2010 study found 140,441 square feet vacant in 2.08 million square feet of space, with availabilities seen in eight of the 45 properties evaluated. For the first time, the survey includes the 1.0 million-square-foot Bergen Town Center, Vornado's redevelopment of the former Bergen Mall. Excluding that property, the road's vacancy rate would have been 6.5%.
"Although we normally exclude enclosed regional malls from our survey, Bergen Town Center's unique blend of mass market, off-price and lifestyle tenants--many of which have outdoor and mall entrances--makes this big-box oriented property a logical addition to our database," Mr. Brunelli explained. The center's anchors include Target, Whole Foods, Century 21, and Nordstrom Rack. Freestanding pad tenants include CVS, Jared, Ulta and Chase (the latter two leases brokered by Brunelli).
While Bergen Town Center was added to the survey, the site of a long-vacant former 62,000-square-foot Huffman Koos store has been removed after the building was demolished to make way for future redevelopment. Meanwhile, the venerable furniture retailer returned to the roadway, taking over the vacant 10,000-square-foot former Domain building. Still, a number of other former furniture stores remain empty, including Seaman's, Storehouse, Basset and Jysk spaces aggregating over 60,000 square feet.
Route 10. For the fifth straight year, vacancies along the 20-mile Livingston to Ledgewood corridor rose, spiking to a 10-year high of 11.5% from 7.3% in 2009. During that 10-year span, the vacancy rate had been as low as 1.5% in 2005 and 1.6% in 2006.
The firm's most recent study uncovered 583,265 square feet of vacancies in the 5.08 million square feet studied, with openings in 45 of the 164 properties reviewed.
"In two positive developments, the vacant Linens 'N Things at Roxbury Mall was taken over by Ramsey Outdoor and a new freestanding REI sporting goods opened in East Hanover," Mr. Brunelli said. "But these key additions to Route 10 were overshadowed by the continuing vacancies of the roadway's other former Linens 'N Things in Livingston, as well as Circuit City, Comp USA and Office Depot stores, plus the more recent closures of the Pathmark and Dollar Tree stores in Dover, NY Sports Club in Denville, and FYE in East Hanover. Combined, these stores alone accounted for approximately 224,000 square feet, or 38%, of the highway's vacancies. On top of this, we saw an acceleration in small-store vacancies, as evidenced by the fact that more than 27% of the corridor's properties had availabilities, up from 19% a year ago."
Route 46/3. The vacancy factor for the 21-mile stretch of Route 46 extending from Dover to West Paterson and the adjoining section of Route 3 in Clifton rose to 6.2% from 5.6% in 2009, reaching a new 10-year high. Over that span, the vacancy factor hit a low of 1.5% in 2003.
R.J. Brunelli's 2010 study uncovered 394,916 square feet of availabilities in the 6.39 million square feet studied, with availabilities in 35 of the 164 properties studied.
With the exception of a Circuit City building in Wayne that sold to P.C. Richard, four other big box spaces along the corridor have yet to be absorbed, including Levitz and Linens 'N Things locations and a pair of Comp USA stores that were shuttered well before the onset of the Great Recession. "With its limited parking, the 65,000-square-foot Levitz is best suited for furniture retailing, so it could likely remain dark for years," Mr. Brunelli said.
Route 23. The healthiest retail corridor in northern New Jersey saw its vacancy factor rise to a 10-year high of 4.5% from 3.4% a year ago. Indicative of the lack of buildable retail land along the 10-mile Wayne-to-Butler section, the vacancy rate was below 2% during four of the last 10 years, with the low of 1.1% set in 2002.
The firm's most recent study reported 100,689 square feet of vacancies in 2.22 million square feet, as 13 of the 63 properties showed availabilities.
With Best Buy's absorption of Route 23's single major big box vacancy--a 40,000-square-foot former Linens 'N Things at Riverdale Crossing--the slight rise in vacancies was triggered by an increase in small-store closings. "This was evidenced by a jump in the proportion of properties with vacancies to 21% in 2010 from just 8% a year earlier," Mr. Brunelli noted.
Route 22. Northern New Jersey's most heavily-retailed corridor saw its vacancy factor build to a new 10-year high of 8.0% from 7.4% in the 2009 survey. Over that period, the rate was as low as 2.4% in 2007. The firm's study area includes the 21-mile stretch of Route 22 from Union to Somerville, as well as nearby sites along intersecting Route 202/206 from the Somerville traffic circle north into Bridgewater, plus the nearby Route 28/287 intersection in Bridgewater.
In its most recent study, R.J. Brunelli found 627,331 square feet of vacancies in the 7.83 million square feet reviewed, with 'for rent' signs up in 44 of 237 properties.
"Route 22 provided the foremost example of how a major, locally-based retailer with an entrepreneurial spirit can jump on unusual opportunities in prime spots," Mr. Brunelli commented, pointing to moves by Union's Bed Bath & Beyond. The company claimed the corridor's pair of Linens 'N Things locations for its Christmas Tree Shops chain and is reportedly taking the former Circuit City space in Bridgewater for its namesake operation. In a partial big box absorption, New Jersey newcomer Unique Thrift took approximately 23,000 square feet of the former 70,000-square-foot National Wholesale Liquidators space in Union.
Still, those moves were not enough to stave off the impact of lingering vacancies of two other Circuit City spaces, an Office Max, an Office Depot, a Home Depot Expo, plus the more recent closure of a 43,000-square-foot Pathmark in North Plainfield. Combined, those big boxes spaces drove 48% of the corridor's vacancies.
R.J. Brunelli & Co. will release its annual study on the central New Jersey market next week. For copies of the firm's northern or central New Jersey studies, contact R.J. Brunelli & Co., Inc., 400 Perrine Road, Suite 405, Old Bridge, N.J., 08857. Telephone is (732) 721-5800.