OLD BRIDGE, N.J. (3/29/05)-Helped by the successful absorption of all former Kids ‘R’ Us locations, the vacancy factor in retail properties along northern New Jersey’s six major shopping corridors declined to just 2.8% during 2004 from 3.2% the previous year, according to R.J. Brunelli & Co., Inc. With the exception of Route 4-where one large availability drove the vacancy rate upward-all other roadways saw improvements during the past 12 months. Factoring out the Route 4 vacancy, the region’s rate for 2004 would have been 2.4%.

In its fifteenth annual study of the northern New Jersey market, the Old Bridge, N.J.-based retail real estate company found 729,472 square feet of vacancies among the 25.77 million square feet of space reviewed along the six highways. In Brunelli’s 2003 study, 807,669 square feet was available in the 25.44 million square feet reviewed. The 2004 performance was the northern market’s fourth best during the past 10 years, trailing the 2.0% rate posted in 2002, but well below the 6.1% recorded during 1995.

The firm’s 2004 study, which was conducted in January 2005, evaluated shopping centers and freestanding buildings exceeding 2,000 square feet along State Highways 4, 10, 17, 22, 23 and 46, 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.

“Year-in and year-out, our findings quantify northern New Jersey’s standing as one of the most desirable retail real estate markets in the entire U.S., and 2004 was no exception,” commented Richard J. Brunelli, president of the firm. “Once again, the market banked on its superb demographics and lack of developable land to weather the departures of major chain retailers. All six vacant Kids ‘R’ Us locations along the six highways were quickly absorbed by Office Depot in the first half of 2004, with some subleased to other operators.

“Later in the year, the bankruptcy of the parent company of furniture retailer Huffman Koos threw five large showrooms onto the market along the region’s roads. At the time of our survey, all but a location on Route 4 were taken,” Mr. Brunelli continued. “Additionally, four Frank’s Nursery locations averaging 20,000 square feet became available along the six roads as the chain finally succumbed to pressure from Home Depot and Lowe’s. A deal is reportedly in the works for a real estate investment trust to buy all of the chain’s leases. We anticipate Frank’s stores in this region should be occupied by new retailers by the end of this year. As 2005 began, landlords in this market faced a fresh challenge of finding new tenants for four Amazing Savings stores being closed in the wake of a Chapter 11 reorganization that will see the chain shut all but 17 of its 86 units, including 72 that were acquired from Odd Job Stores in 2003. Like the Frank’s stores, we would anticipate that most of these locations in northern New Jersey will be absorbed before the end of this year.”

Results for the individual northern New Jersey roadways are as follows:

Route 17. The vacancy factor decreased to 3.2% during 2004 from 3.7% in 2003 along the 15-mile section from Paramus to Mahwah. Over the past 10 years, this corridor’s vacancy rate has ranged from a low of 1.5% in 2001 to a high of 6.0% in 1996. R.J. Brunelli’s 2004 survey uncovered 143,500 square feet of vacancies in the 4.54 million square feet studied, down from 163,094 square feet in 4.36 million square feet the previous year. The roadway’s total was increased largely by the opening of a freestanding, 135,000-square-foot Home Depot in Mahwah. Fourteen of the corridor’s 143 properties had vacancies, compared with 12 of the 141 reviewed in the 2003 study.

The roadway’s lone Kids ‘R’ Us location, a 25,000-square-foot freestanding site in Paramus, was sold by Toys ‘R’ Us to Sixth Avenue Electronics. In a deal brokered by R.J. Brunelli & Co., Sixth Avenue Electronics also took over the former Kids ‘R’ Us site in Jersey City.

Meanwhile, Ikea, the roadway’s big newcomer in 2003, is reportedly close to finalizing a deal with a big-box retailer for a new store that will adjoin its 378,000-square-foot location in Paramus.

Route 4. Skewed by the closing of the 100,000-square-foot Huffman-Koos store, the vacancy rate surged to 10.6% in the 1.09 million square feet studied along the three-mile segment between Paramus and Fairlawn. This single building accounted for almost 90% of the 111,500 square feet available in this stretch, where the vacancy factor has been less than 2.0% in five of the last 10 years. Just three of the 47 properties reviewed had openings in the 2004 survey. In the firm’s 2003 survey, a total of 18,500 square feet was available in 1.05 million square feet, resulting in a vacancy rate of only 1.8%, with openings in three of the 47 properties.

“We anticipate that the Huffman-Koos store should not be on the market for long,” Mr. Brunelli commented.

Route 23. For the second straight year, the 10-mile Wayne-to-Butler corridor along Route 23 had the lowest vacancy rate in the northern New Jersey region, edging down to 1.4% from an already slim 1.6% during both 2003 and 2002. Over the last 10 years, the corridor’s vacancy rate has been as low at 1.1% in 2001-a far cry from the 7.1% posted in 1995.

The firm’s 2004 study found just 23,700 square feet of vacancies in the 1.71 million square feet reviewed-down from 27,700 square feet the previous year. No new footage was added to the roadway over the past year. As in 2003, openings were found in five of the corridor’s 54 properties. The roadway will get a major boost in total footage in 2005, with the upcoming openings of Wal-Mart and Lowe’s in Riverdale.

Route 46. The corridor’s vacancy rate dropped to 2.7% in 2004 from 3.4% the previous year. Brunelli’s 2004 survey uncovered 161,200 square feet of vacancies in 5.88 million square feet of space, compared with 196,674 square feet in 5.82 million square feet in 2003. Openings were found in 17 of the 161 properties evaluated, versus 18 in 159 in 2003.

R.J. Brunelli’s Route 46 study area includes the 21-mile Dover to West Paterson corridor, as well as nearly 800,000 square feet of space along an adjoining section of Route 3 in Clifton, and a 442,000-square-foot power center just behind Beltway Mall in Wayne. At the latter property, the vacancy factor was pared to 29,000 square feet from 63,000 square feet in the 2003 survey, as Electronics Expo took the former Wiz space. The study area’s rate was also driven down by the filling of all 15,000 square feet of vacancies in Clifton’s Rowe Manse Center, as well as the absorption of all but 2,000 square feet of the 19,500 square feet that had been available in the 100,000-square-foot Ledgewood Circle Shopping Center anchored by Ramsey Outdoor.

Route 10. The vacancy rate fell to 1.5% in 2004 from 2.4% the previous year-the lowest level in 10 years along the 20-mile Livingston to Ledgewood corridor. This also marked the seventh straight year in which the corridor’s vacancy rate was less than 3%. The firm’s 2003 survey found 71,000 square feet of vacancies in 4.71 million square feet, compared with 111,823 square feet in 4.62 million square feet in 2003. Availabilities were found in 16 of 127 properties, compared with 12 in 126 sites in the 2003 survey.

The improvement on Route 10 was fueled by the re-leasing of closed Kids ‘R’ Us, Zany Brainy and Today’s Man stores to Office Depot, Golf Smith and MJM Designer Shoes, respectively. “MJM, a new concept from Burlington Coat Factory that competes with DSW Shoes in the better off-price footwear arena, is emerging as an important new player for big-box spaces in New Jersey,” said Mr. Brunelli. “The chain
opened three stores in the northern and central regions during 2004 and the first quarter of 2005, taking spaces in the 20,000- to 25,000-square-foot range.”

Route 22. The vacancy rate along Northern New Jersey’s most heavily-retailed corridor improved to 2.8% in 2004 from 3.7% in 2003, continuing the up-and-down pattern over the last 10 years that has seen the factor range from a low of 1.8% in 1999 to a peak of 7.3% in 1997. The firm’s survey evaluates properties along the 21-mile area extending from Union to Somerville, plus nearby space along intersecting Route
202/206 from the Somerville traffic circle north into Bridgewater, as well as the nearby Route 28/287 intersection in Bridgewater.

More specifically, the 2004 survey found 218,572 square feet of availabilities in the corridor’s 7.89 million square feet of space, compared with 289,878 square feet in 7.89 million square feet in 2003. Vacancies were seen in 19 of the 235 properties evaluated, down from 25 in 233 properties in 2003.

The brightened picture during 2004 was keyed by Office Depot’s takeover of the Kids ‘R’ Us locations at Union Plaza in Union, Blue Star Shopping Center in Watchung and at the Somerset County Shopping Center at the Somerville Circle. In other major activity, the former Gateway Computer space at Blue Star was leased to Tuesday Morning in a deal handled by R.J. Brunelli & Co., which serves as the off-price chain’s preferred broker for northern and central New Jersey. Elsewhere in the northern region, the firm brokered leases for Tuesday Morning at the ITC Center in Mt. Olive and in Midland Park (both of which are outside of the six major retail corridors).

Meanwhile, in Somerville, the freestanding, 50,000-square-foot Huffman Koos building was snatched up by Levitz Furniture-having no impact on the 2004 vacancy figures.

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.