OLD BRIDGE, N.J., May 20, 2011 /PRNewswire/ -- With a series of recent Pathmark supermarket closings countering progress on the absorption of older big-box vacancies, retail vacancy rates along major shopping corridors in northern and central New Jersey climbed over prior year levels, according to the latest annual study by R.J. Brunelli & Co., LLC.
Conducted in April, the Old Bridge-based retail real estate brokerage's 22nd annual survey of the two regions found that the combined vacancy rate in open-air centers and freestanding retail properties along the 10 corridors escalated to 9.3% from 8.9% in 2010 and 7.8% in 2009. All told, the survey found 5.52 million square feet of vacancies in the 59.06 million square feet of gross leasable area (GLA) studied. Big box spaces of 20,000 square feet and above drove 49.6% of the vacancies. The study evaluated shopping centers and freestanding buildings exceeding 2,000 square feet—including restaurants, auto service facilities and closed auto dealerships deemed suitable for retail use. Regional malls and centers under construction or major redevelopment are excluded.
In the northern region, the vacancy factor inched up to 8.1% from 8.0% in 2010 and 6.6% in 2009—by far the highest rate over a 10-year period during which the factor was as low as 2.0% in 2003. More specifically, 2.33 million square feet of available space was found in the 28.78 million square feet studied along Routes 4, 10, 17, 22, 23 and 46/3 in Bergen, Passaic, Morris, Essex, Union and Somerset counties. Big box spaces accounted for nearly 1.0 million square feet or 42.9% of the region's vacancies, edging down from 43.0% in 2010.
The central region's vacancy rate, meanwhile climbed to a 10-year-high of 10.5% from 9.8% in 2010 and 9.0% in 2009, well above the 3.4% low set in 2006. A total of 3.18 million square feet of empty space was seen in the 30.28 million square feet of GLA reviewed along Routes 1, 9, 18 and 35 in Middlesex, Monmouth, Mercer and a small section of Ocean counties. Big boxes combined for 1.74 million square feet, or 54.5%, of the region's vacancies, up from 51.3% a year ago.
Vacancy rates declined on four of the corridors (Routes 17, 4, 23, and 1) and were stable on Route 22, but those improvements were set aside by increases on Routes 10, 46/3, 35, 9 and 18. (For complete details, see the press releases on the northern and central regions posted on the News and Information page of www.njretailrealty.com.)
Three major bankruptcies—The Great Atlantic & Pacific Tea Co., Blockbuster Video and Borders Group—had varying impacts on the corridors' vacancy rates. A&P alone generated over 553,000 square feet of dark space along the major highways in the two regions, with closings of 10 Pathmark stores (including one that was shuttered in 2010) and one A&P location. Blockbuster, to date, shuttered 18 stores with a combined 99,000 square feet of space along the 10 corridors. Only one Borders store has been closed thus far in the study area, adding 28,000 square feet to the central region's inventory. (These figures exclude locations off the corridors or, in the case of Borders, at regional malls.)
"Including off-corridor sites, the closures of Pathmark and A&P supermarkets are creating a growing number of anchorless neighborhood centers in central and northern New Jersey," said Richard J. Brunelli, president of the firm. "Given the level of saturation in many markets and the industry's consolidation, finding replacement supermarkets to slide right is becoming increasingly difficult. In particular, some chains are reluctant to take locations in close proximity to high-volume operators like ShopRite and Wegman's. Consequently, many landlords are looking to fill these spaces with health clubs or lease a portion of the space to sub-anchor retailers like Staples and PetSmart."
He added that landlords should have an easier time leasing the former Blockbuster locations, but may be compelled to subdivide the spaces due to limited opportunities with retailers seeking stores in the 5,000- to 7,000-square-foot range.
"Generally speaking, as evidenced by some of the big box absorption we saw over the past year for former Circuit City, Linens 'n Things and even Comp USA spaces that had lingered on the market, demand is picking up somewhat for well-located 'A' and 'B' properties," Mr. Brunelli said.
Indeed, most of the Circuit City and Linens 'n Things locations that flooded the northern and central New Jersey markets in 2009 have been absorbed by the likes of Bed, Bath & Beyond, Christmas Tree Shops, Dick's Sporting Goods, DSW Shoes, Home Goods, LA Fitness, and PC Richard & Son. Other locations have been subdivided for chains like Ashley Furniture, Fashion Bug and new accessories superstore XSRE. Comp USA locations in the study area, meanwhile, were taken during the past 12 months by such chains as JoAnn Fabrics & Crafts, Michaels and Petco. Still, a number of spaces from those three chains remain unclaimed, as do longer-term vacancies from such bankrupt or downsized retailers as Levitz, Home Depot EXPO, Great Indoors, Value City, Office Depot, and Office Max.
"With home sales still in the doldrums, the furniture and home furnishings sectors remain problematic," Mr. Brunelli observed. "Despite some limited absorption during the past year, spaces ranging from 3,000-square foot specialty stores to huge Levitz and Great Indoors locations sit empty along the highways. Making matters worse, due to their limited parking, the large, freestanding furniture showrooms are not easily convertible to other uses."
Meanwhile, the corridors remain fertile ground for restaurants of varying sizes, with chains entering the two regions or rapidly expanding their presence during the past year including Brick House Tavern, Buffalo Wild Wings, Joe's Crab Shack, Texas Roadhouse, Zin Burger, and R.J. Brunelli & Co. clients Muscle Maker Grill and Red Robin.
On another encouraging note, fitness centers (including R.J. Brunelli client Workout World) remain active seekers of big-box space, while beauty and lifestyle services tenants (such as R.J. Brunelli clients Ulta, Massage Envy, and European Wax Center) are regularly absorbing spaces ranging from 2,000 square feet to 10,000 square feet.
Looking ahead, Mr. Brunelli commented: "Although we don't anticipate any other major retail bankruptcy filings to exacerbate vacancies along the corridors during the coming year, there's clearly a great deal of inventory out there. But with New Jersey's dense population and high household income, the northern and central markets remain high on the radar screen of expansion-minded retail and restaurant chains. Against that background, we expect most prime spaces will be absorbed, causing vacancy rates to tighten in 2012-13 and rents to begin creeping upward."
For copies of the firm's northern or central New Jersey studies, contact R.J. Brunelli & Co., LLC, 400 Perrine Road, Suite 405, Old Bridge, N.J., 08857, or visit www.njretailrealty.com. Telephone is (732) 721-5800.
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SOURCE R.J. Brunelli & Co., LLC