Furniture World - Retail Vacancy Rate Rises 8%

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Retail Vacancy Rate In Northern NJ Rises to 8% Tuesday, May 18, 2010

The vacancy rate in retail properties along northern New Jersey's sixmajor shopping corridors reached 8.0% in April, as numerous 'bigbox' spaces that went dark in 2008 and 2009 have remained empty

and small space absorption faltered in the wake of tight creditmarkets, according to R.J. Brunelli & Co., LLC. This compared witha 6.6% vacancy factor in the firm's previous study, which wasconducted in February 2009. Of the six highways, only one--Route4--saw its vacancy rate decline from 2009 levels.Effective with this year, the Old Bridge, N.J.-based retail real estatebrokerage shifted the study period for its annual surveys of thenorthern and central New Jersey retail real estate markets to Aprilfrom February. "Given the fact that retailers often wait until afterthe holiday season to begin liquidating failing stores, we felt thatconducting 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 NewJersey market found 2.27 million square feet of vacancies in the28.53million square feet of space reviewed along the six corridors,with availabilities seen in 174 of the 816 properties evaluated. Thiscompared with 1.84 million square feet of vacancies in 27.96 millionsquare feet of space in the 2009 study, in which openings wereseen in 118 of the 808 properties reviewed. For nine of the prior 10years, 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 andfreestanding buildings exceeding 2,000 square feet along StateHighways 4, 10, 17, 22, 23 and 46/3, and certain intersectingarteries in Bergen, Essex, Morris, Passaic, Somerset and Unioncounties. Freestanding restaurants and auto service facilities arealso included, while enclosed regional malls and centers underconstruction 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 973,000square 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, or16%, emanated from new vacancies along the six corridors.

!

Eight vacant big box spaces totaling approximately 273,000 square feetwere absorbed during the past year.

The results underscore the difficulty landlords are experiencing inattempting to fill big box vacancies arising from the earlierbankruptcies or closures of such major chains as Circuit City, Linens'n Things, National Wholesale Liquidators, Levitz, Comp USA andHome Depot Expo, as well as selective closings by chains likePathmark, Office Depot and Office Max," said Mr. Brunelli. "While anumber of national and regional chains have stepped up to theplate and snapped up some of these prime locations at favorablerents, it could be some time before this glut of big box inventory isfully absorbed."He pointed to Bed, Bath and Beyond, Best Buy, Christmas TreeShops, Dick's Sporting Goods, P.C. Richard, Ramsey Outdoor,Unique Thrift, furniture retailers Ashley and Bob's, and R.J. Brunelliclients Sixth Avenue Electronics and Workout World as companies

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that have seized opportunities in vacant big box spaces in variousNew Jersey markets. The big box and mid-sized space markets onand off the corridors also got a slight lift within the past year fromthe return under new or original ownership of four names that hadgone through bankruptcy: Huffman Koos (with five of its nineshowrooms and outlets located in northern New Jersey), FortunoffBackyard Store (two of its seven locations in the region), Marty'sShoes (nine of its 14 stores in the region) and National WholesaleLiquidators (one of its seven stores in the region).

Mr. Brunelli said that the glut of big box inventory has beencompounded by ongoing struggles of independent retailers,particularly operators of small furniture stores or other homefurnishing shops whose business is closely tied to the moribundhousing market. "Ordinarily, we will see new independents step inwhere others fail, but the credit crunch has clearly thwarted theability of many entrepreneurs to launch new retail or restaurantconcepts or expand their existing ones, exacerbating vacancies upand down the highways," he explained.

"Still, a number of franchised and company-operated chains withunique, lifestyle-oriented concepts have managed to buck this trendand take advantages of unique opportunities to get into small andmid-sized spaces at very attractive rental rates," Mr. Brunellicontinued. Within the firm's tenant rep circle those expansion-minded chains include such names as Ulta, Massage Envy, MuscleMaker Grill and European Wax Center.

Looking ahead, he commented: "Although all signs suggest that theeconomy has bottomed out, the absorption of commercial realestate--and especially retail real estate--is traditionally a laggingindicator. Against that background, we expect vacancy rates to holdsteady or decline slightly through the remainder of this year andinto the first half of 2011, with absorption accelerating in 2012.Several years later we could see a return to lower rates seen in2006 and 2007, when the vacancy factor for the northern New

Jersey market hovered around 3%."Results for the individual northern New Jersey roadways are asfollows:Route 17. After jumping to 7.0% in 2009 from 4.5% in 2008, thevacancy rate along the 15-mile corridor extending from Paramus toMahwah climbed again to 8.7% this year--well above the 10-yearlow of 1.5% set in 2002.

The firm's 2010 study found 427,317 square feet of vacancies in theroadway's 4.93 million square feet of space. Twenty-nine of the143 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% inproperties in the section north of Paramus, with 27,400 square feetavailable in 979,000 square feet in the section comprising UpperSaddle River, Ramsey and Mahwah, where very limited retail zoninghas kept a lid on development, Mr. Brunelli noted.In positive developments at Paramus properties, Dick's SportingGoods leased the 57,000-square-foot former Linens 'n Thingssuperstore at Paramus Towne Square and Fortunoff Backyardreturned in 17,000 square feet in a small strip center. Conversely,the vacant Circuit City, Home Depot Expo and Comp USA spaces inParamus (aggregating 161,000 square feet) remained unclaimed.Those availabilities were exacerbated by closings of two otherParamus 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 animprovement, Route 4 saw its vacancy rate decline to 6.8% from8.2% in the firm's 2009 survey and 10.1% in 2008. Over the past10 years, the vacancy rate in the three-mile area between RiverEdge and Paramus has ranged from a low of 1.7% in 2003 to10.6% in 2005.All told, R.J. Brunelli's 2010 study found 140,441 square feet vacantin 2.08 million square feet of space, with availabilities seen in eightof the 45 properties evaluated. For the first time, the survey

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includes the 1.0 million-square-foot Bergen Town Center, Vornado'sredevelopment 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 oursurvey, Bergen Town Center's unique blend of mass market, off-price and lifestyle tenants--many of which have outdoor and mallentrances--makes this big-box oriented property a logical additionto our database," Mr. Brunelli explained. The center's anchorsinclude Target, Whole Foods, Century 21, and Nordstrom Rack.Freestanding pad tenants include CVS, Jared, Ulta and Chase (thelatter two leases brokered by Brunelli).While Bergen Town Center was added to the survey, the site of along-vacant former 62,000-square-foot Huffman Koos store hasbeen removed after the building was demolished to make way forfuture redevelopment. Meanwhile, the venerable furniture retailerreturned to the roadway, taking over the vacant 10,000-square-footformer Domain building. Still, a number of other former furniturestores remain empty, including Seaman's, Storehouse, Basset andJysk spaces aggregating over 60,000 square feet.

Route 10. For the fifth straight year, vacancies along the 20-mileLivingston to Ledgewood corridor rose, spiking to a 10-year high of11.5% from 7.3% in 2009. During that 10-year span, the vacancyrate 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 ofvacancies in the 5.08 million square feet studied, with openings in45 of the 164 properties reviewed."In two positive developments, the vacant Linens 'N Things atRoxbury Mall was taken over by Ramsey Outdoor and a newfreestanding REI sporting goods opened in East Hanover," Mr.Brunelli said. "But these key additions to Route 10 wereovershadowed by the continuing vacancies of the roadway's other

former Linens 'N Things in Livingston, as well as Circuit City, CompUSA and Office Depot stores, plus the more recent closures of thePathmark and Dollar Tree stores in Dover, NY Sports Club inDenville, and FYE in East Hanover. Combined, these stores aloneaccounted for approximately 224,000 square feet, or 38%, of thehighway's vacancies. On top of this, we saw an acceleration insmall-store vacancies, as evidenced by the fact that more than 27%of the corridor's properties had availabilities, up from 19% a yearago."Route 46/3. The vacancy factor for the 21-mile stretch of Route46 extending from Dover to West Paterson and the adjoiningsection 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 squarefeet 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 boxspaces along the corridor have yet to be absorbed, including Levitz and Linens 'N Things locations anda pair of Comp USA stores that were shuttered well before the onset of the Great Recession. "With itslimited parking, the 65,000-square-foot Levitz is best suited for furniture retailing, so it could likelyremain 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, as13 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 formerLinens 'N Things at Riverdale Crossing--the slight rise in vacancies was triggered by an increase insmall-store closings. "This was evidenced by a jump in the proportion of properties with vacancies to21% in 2010 from just 8% a year earlier," Mr. Brunelli noted.

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well as nearby sites along intersecting Route 202/206 from the Somerville traffic circle north intoBridgewater, 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 millionsquare 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 anentrepreneurial 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 Cityspace in Bridgewater for its namesake operation. In a partial big box absorption, New Jerseynewcomer Unique Thrift took approximately 23,000 square feet of the former 70,000-square-footNational Wholesale Liquidators space in Union.Still, those moves were not enough to stave off the impact of lingering vacancies of two other CircuitCity spaces, an Office Max, an Office Depot, a Home Depot Expo, plus the more recent closure of a43,000-square-foot Pathmark in North Plainfield. Combined, those big boxes spaces drove 48% of thecorridor's vacancies.R.J. Brunelli & Co. will release its annual study on the central New Jersey market next week. Forcopies of the firm's northern or central New Jersey studies, contact R.J. Brunelli & Co., Inc., 400Perrine Road, Suite 405, Old Bridge, N.J., 08857. Telephone is (732) 721-5800.

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