– 47% of vacant space came from nine major chains

Ongoing troubles in the retail industry caused the vacancy rate along central New Jersey’s four largest shopping corridors to rise for the third straight year, to 9.0% in 2008 from 4.7% a year earlier, according to R.J. Brunelli & Co., Inc. With all four roadways seeing increased availabilities, the 2008 performance marked the region’s highest vacancy factor over the last 10 years and is more than double the decade’s low of 3.4% set in 2005.

The Old Bridge-based retail real estate brokerage’s 20th annual study of the central New Jersey market found 2.54 million square feet of vacancies in the 28.34 million square feet of space reviewed along State Highways 1, 9, 18 and 35 in Mercer, Middlesex and Monmouth counties, and a small section of Ocean County. Availabilities were seen in 121 of the 516 properties reviewed. By contrast, the firm’s 2007 study reported 1.33 million square feet of vacancies in 28.11 million square feet.

This latest report follows the issuance last week of the firm’s annual survey of the northern New Jersey market, where the vacancy rate grew to 6.6% from 3.6% in 2007, with 1.84 million square feet available in the 27.96 million square feet reviewed along six corridors. On a consolidated basis, the two regions saw their vacancy rate escalate to 7.8% in 2008 from 4.2% a year earlier, with 4.38 million square feet available in the 56.30 million square feet studied.

“Looking back over the last 17 years, the consolidated rate was exceeded only by the 8.2% set in 1992,” said Richard J. Brunelli, president of the firm. “At that time, it took six years for the rate to come down to a healthy level of 5.1% in 1998. This marked the start of an extended exceptionally strong period during which rates never went higher than the 4.4% recorded in 2001 and got as low as 3.2% in 2005, before moving back to last year’s 7.8%. Based on current economic conditions, consolidation in the retail and restaurant industries, and the vast amount of big-box space now available, we expect that it will again take several years before the combined vacancy rate settles back down below the 5% factor that, nationally, is considered the standard for a healthy retail real estate market.”

Conducted in January 2009, the 2008 central region study evaluated shopping centers and freestanding buildings exceeding 2,000 square feet—including restaurants and auto service facilities. Regional malls and centers under construction or major redevelopment are excluded. Stores running going-out-of-business sales earlier this year were accounted for as vacancies.

“As we saw in the more mature northern New Jersey market, the central New Jersey region has been inundated with an unprecedented number of ‘big-box’ spaces in the wake of bankruptcies and major or selective downsizings by various national chains,” said Mr. Brunelli. “Along the four corridors, chainwide or selective closures of Circuit City, Linens ‘n Things, Levitz, Comp USA, Value City, Office Depot, Office Max, Sears’ Great Indoors and Home Depot locations accounted for 1.19 million square feet, or 47%, of the vacancies in our 2008 survey. Most of these are prime, well-located spaces.”

He added that the effects of those big-box closures were exacerbated by the numerous smaller space vacancies stemming from bankruptcies or downsizings at such chains as Marty’s Shoes, Harvey Electronics, Fashion Bug, Domain, Hollywood Video, Bennigan’s, Steak & Ale, LoneStar, as well as closings of numerous independent furniture, flooring and other home products retailers that have been impacted by the depressed housing market.

Vacancies in central New Jersey will get pushed up further shortly by the current wind-down of Fortunoff’s, whose operations in the region included two Outdoors stores along Routes 1 and 35, as well as a full-line location within Woodbridge Center mall.

The firm’s research additionally noted that 19 of the 27 big box spaces closed by the nine
aforementioned chains are in the 25,000 to 50,000 square foot range. “This presents a unique challenge for landlords, along with unprecedented opportunities for big box chains looking to establish a presence in the central New Jersey market with a large enough cluster to justify the metro New York area’s high media costs,” Mr. Brunelli commented. “However, in the absence of moves by one or more big box operators to make that kind of splash, many of these spaces could remain empty for several years. We’ve already seen this with a number of the Comp USA locations that have gone unclaimed after two years, as well as larger Levitz locations that have remained dark for a year or more.

“Against that backdrop, we can expect landlords of some properties to deploy creative alternative uses for hard-to-lease big-box spaces, perhaps looking beyond fitness centers or restaurant clusters that have been a panacea in recent years,” he continued. Such options might include family entertainment centers, bowling alleys, ice skating or hockey rinks, or other athletic facilities.

“Still, our expectation is that most of the big box and smaller locations that have gone dark in central New Jersey will ultimately stay in the hands of retail, restaurant or personal service chains,” Mr. Brunelli said. “With the current market conditions, there’s probably never been a better time for expansion-minded chains to capitalize on extraordinary opportunities in well-located properties. We can expect national value-oriented chains like Wal-Mart, Marshall’s, T.J. Maxx and Kohl’s to take advantage of such opportunities to round out their market presence. At the same time, a number of smaller space users are actively or selectively seeking deals, including such R.J. Brunelli clients as Sixth Avenue Electronics, Ulta, Tuesday Morning, Houlihan’s, Just Cabinets, Toys ‘R’ Us/Babies ‘R’ Us, Play & Trade video, Arby’s, Sonic Drive-ins and Kona Grill, which just opened its first New Jersey location on Route 1 in Woodbridge.”

Results for central New Jersey’s individual roadways are as follows:

Route 1. Amassing the largest volume of empty big box space on any roadway in central or northern New Jersey, the 30-mile section extending from Woodbridge to Trenton saw its vacancy factor surge to a 10-year-high of 9.5% from 3.5% in 2007. This marked a stark contrast with the corridor’s general performance over the last decade, with the vacancy rate hitting a low of 1.8% in 2001 and five of the years coming in below the 3% mark.

R.J. Brunelli’s 2008 study found 768,430 square feet of vacancies in 8.13 million square feet, up sharply from the 279,200 square feet in 7.93 million square feet recorded a year ago. Availabilities were seen in 29 of the roadway’s 106 properties.

Twelve major chain big boxes totaling 541,270 square feet drove an overwhelming 70% of the highway’s vacancies, with several spaces available for a year or more. This group included four Office Depots, two stores each from the Circuit City and Linens ‘n Things chains, and single locations from Sears Great Indoors, Levitz, Office Max and Comp USA.

In addition to the aforementioned 7,500-square-foot Kona Grille, openings along Route 1 will soon include Shannon Rose Irish Pub, which is now building out a 9,000-square-foot portion of the former Office Max space at the St. Georges Crossing center in Woodbridge.

Route 18. With four major closures over the past year, the small five-mile stretch in East Brunswick saw its vacancy rate skyrocket to 18.0% during 2008 from a prior 10-year-high of 7.3% in 2007. During the last decade, the highway’s vacancy factor was at its low point of 2.8% in 2001.

In its 2008 survey, the firm reported that vacancies more than doubled to 444,200 square feet in 2.46 million square feet of space, from 177,200 square feet in 2.42 million square feet the prior year. Fifteen of the 63 properties reviewed had vacancies.

Adding to the Levitz building that’s been shuttered since the 2007 study, closings of Circuit City, Home Depot, Linens ‘n Things and Office Max stores brought the national big box vacancies to 204,500 square feet, or 46% of the corridor’s available space.

Other sizable spaces that remain empty include former Borders and Odd Job locations at Mid-State Mall, and the Toys ‘R’ Us building at Loehmann’s Plaza. The latter store was closed before the 2008 holiday season, when—in a deal brokered by R.J. Brunelli—the chain relocated south on the corridor to a new 62,000-square-foot space that pairs the company’s Toys ‘R’ Us and Babies ‘R’ Us brands in a dual concept store that is the first of its kind in central New Jersey. The store represents the first phase of Summerhill Square, which is expected to ultimately house 188,000 square feet of retail space.

Route 9. After dropping to a 10-year low of 3.6% during 2007, vacancies along the 35-mile Woodbridge-to-Lakewood corridor climbed back up to 7.6% in the wake of big-box closings. Still, the factor remained comfortably below the last decade’s peak of 10.8% set in 2001.

The 2008 study reported 615,720 square feet of availabilities in the 8.12 million square feet evaluated, more than twice the 290,000 square feet in 8.16 million square feet a year ago. Of the 160 properties surveyed, 35 had vacancies.

Six national chains accounted for 231,000 square feet, or 37.5%, of the roadway’s vacancies. This group included two Linens ‘n Things, and single locations from Value City, Circuit City, Office Depot and Office Max.

Newcomers to Marlboro-Manalapan section of the highway will include Chase Bank, which—in a deal brokered by R.J. Brunelli—is under construction on a former office building outparcel at Marlboro Plaza, a center anchored by Kohl’s, Pathmark and Staples.

Route 35. Vacancies grew for the third straight year along the 25-mile corridor extending from Aberdeen Township to Brielle to 7.4% in 2008—the highest level over a 10-year period during which the rate was at a low of 3.3% in 1999.

R.J. Brunelli found 714,984 square feet of vacancies in the 9.63 million square feet studied, up from 588,218 square feet in 9.61 million square feet in 2007. Vacancies were found in 42 of the corridor’s 187 retail sites. The study area—which includes a section of Route 36, extending from its intersection with Route 35 in Eatontown, east to West Long Branch—has the most retail space of the 10 corridors evaluated by the firm in central and northern New Jersey.

Closures of the roadway’s single Linens ‘n Things and Circuit City stores added to a pair of Levitz buildings that have remained unclaimed since 2007 and 2006. This brought the inventory from those three bankrupt retailers to 204,500 square feet, or 29%, of the corridor’s vacancies.

On a brighter note, in deals brokered by R.J. Brunelli, Burlington Coat Factory and Drug Fair have signed leases for 80,000 square feet and 23,000 square feet, respectively, in the former Lowe’s store at Seaview Square in Ocean Township. Burlington Coat will be relocating from a smaller, low visibility space at nearby Monmouth Mall, while Drug Fair will be moving from nearby Middlebrook Shopping Plaza, where its Cost Cutters concept operated in a portion of the space that now houses the 95,000-square-foot Kohl’s opening this spring.

On the Route 36 section of Eatontown, Best Buy has acquired the lease for the former 46,000-square-foot Pathmark store, with renovations expected to begin soon. Notably, the center adjoins a site housing a vacant Circuit City. Moving north on Route 35, in deals brokered by R.J. Brunelli, Chase Bank signed leases for former gas station sites across from Whole Foods in Middletown and just north of Costco in Hazlet (the latter recently opened). In another Hazlet deal brokered by R.J. Brunelli, limited assortment grocer Aldi opened last year in 21,000 square feet in a center anchored by Toys ‘R’ Us.
Further north in Hazlet, a Foodtown supermarket is under construction in a long vacant space in the
center anchored by Staples.

For copies of R.J. Brunelli & Co.’s central or northern New Jersey studies, contact R.J. Brunelli & Co., Inc., 400 Perrine Road, Suite 405, Old Bridge, N.J., 08857. Telephone is (732) 721-5800.


Press contacts: At R.J. Brunelli & Co., Inc., Richard J. Brunelli, president, (732) 721-5800; at Parness & Associates Public Relations, Bill Parness or Lisa Kreda (732) 290-0121, parnespr@optonline.net