OLD BRIDGE, N.J. (3/12/08)—Fueled by the bankruptcies of Levitz Furniture and The Rag Shops, and closings of Comp USA stores in all but a few Sunbelt markets, vacancies in retail properties along northern New Jersey’s six major shopping corridors grew to 3.6% during 2007 from 2.9% a year earlier, according to R.J. Brunelli & Co., Inc. Despite the increase, the firm stressed that the market continues to boast one of the lowest retail vacancy rates in the nation, with two of the corridors (Routes 17 and 46/3) actually posting improvements over their 2006 vacancy factors.

The Old Bridge, N.J.-based retail real estate brokerage’s eighteenth annual study of the northern New Jersey market uncovered 1.01 million square feet of vacancies in the 27.58 million square feet of space studied along the six corridors, with availabilities seen in 100 of the 806 properties evaluated. These totals compared with the 2006 study’s findings of 810,167 square feet of vacancies in 27.58 million square feet of space. The 2007 vacancy factor was the region’s second highest over the last 10 years, topped only by the 3.7% rate posted in 1998. The region’s vacancy rate was as low as 2.0% in 2002.

Conducted in January 2008, the firm’s 2007 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.

“Notwithstanding the past year’s increase in vacancies, northern New Jersey maintained its status as one of the nation’s most desirable retail markets,” said Richard J. Brunelli, president of the firm. “An increase in the vacancy factor to 3.6% could hardly be called alarming, all the more so when considering that the closings of six Levitz locations, four Comp USAs and three Rag Shops accounted for approximately 430,000 square feet, or 43%, of the market’s available space.”

Beyond Levitz’s demise, bankruptcies, downsizings or outright closings of a number of other chain and independent home furnishings retailers added well over 125,000 square feet of vacancies to the region’s inventory. “This is all a reflection of the depressed condition of the housing industry and the challenges many homeowners face in trying to boost their home equity lines for cosmetic or structural improvements,” Mr. Brunelli commented. “On a positive note, Raymour & Flanigan continues to capitalize on its competitors’ woes and is reportedly purchasing between 15 and 20 of the Levitz leases in several states. It is expected that this group should include several of the northern New Jersey locations—most of which are only suitable for furniture use, due to parking constraints.”

As for the four remaining Comp USA locations along the corridors, Mr. Brunelli noted all had proven somewhat difficult to sub-lease last year due to high rents and concerns among potential occupants over the status of their leases in the event the chain filed for bankruptcy. “With the corporate entity that held the leases now demised, it should be easier to find new tenants for these well-located spaces along Routes 10, 17, 22 and 46,” he said. Another Route 46 location in the Troy Hills Shopping Center was previously taken over by Circuit City.

In terms of new development, the only major new property to open during the 2007 was the 135,000-square-foot freestanding Target on Route 23 in Riverdale. Meanwhile, construction continues on The Village at Clifton, a new 110,000-square-foot lifestyle center on Route 3. Additionally, major redevelopment projects are underway at two properties excluded from the survey. Wayne Towne Center, located at the junction of Routes 23 and 46, and anchored by Fortunoff’s and JC Penney, is being transformed into an open-air center. On Route 4 in Paramus, work is underway on the transformation of the Bergen Mall into a center co-anchored by Century 21 (already opened), Target and Whole Foods.

“Of course, the biggest development news in northern New Jersey and throughout the state is the construction of Meadowlands Xanadu, the 2.3 million-square-foot sports, leisure, retail and entertainment complex,” said Mr. Brunelli. “Due to current economic conditions, the phase that debuts this year will certainly open with some vacancies. But over time, we would expect the project to be fully occupied. Given its anticipated status as a major tourist and family destination, we do not see Xanadu having much of a negative impact on nearby retail centers along Routes 3 and 17. If anything, we look for Xanadu to give a boost to New Jersey tourism, encouraging visitors to nearby Manhattan to spend a few more days in the area and possibly explore other parts of our state.”

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

Route 17. After two years of increases, the vacancy factor declined to 4.5% in 2007 along the 15-mile section spanning from Paramus to Mahwah. Over the last 10 years, the corridor’s vacancy rate has ranged from a low of 1.5% in 2001 to a high of 5.3% in 2006.

The firm’s most recent study found 216,685 square feet of vacancies in the corridor’s total inventory of 4.84 million square feet—down from 256,334 in 4.85 million square feet in 2006. Openings were seen in 18 of the 142 properties surveyed.

Major contributors to the lower vacancy rate included the leasing of a 39,000-square-foot space at Paramus’ Fashion Center to New York-based Fairway Supermarkets for what will be its first New Jersey store; the lease-up of the former 47,500 square-foot Treasure Island at Interstate Plaza in Ramsey to Michaels and other tenants; the takeover of a 21,900-square-foot Treasure Island in Paramus by Williams-Sonoma’s West Elm furniture; Burlington Coat’s expansion at a Paramus center it anchors, absorbing 25,000 square feet of vacancies; and Rochester Big & Tall’s lease of the 14,000-square-foot former Nassau Window’s space in Paramus.

These and other new leases served to offset the effects of such major new vacancies as the 74,000-square-foot Levitz and 40,000-square-foot Comp USA, both in Paramus.

Route 4. Closings of four home furnishings stores caused the vacancy rate to spiral to 10.1% from 3.2% in 2006 along the three-mile stretch from River Edge to Paramus, following two straight years of declines. The current rate is still below the 10-year high of 10.6% reached in 2004, but well above the 1.0% low set in 1998.

The firm’s 2007 study found 110,538 square feet of vacancies in the 1.09 million square feet review, compared with 36,833 square feet in 1.16 million square feet a year ago, when the survey included the Cineplex Odeon site which is now being redeveloped—and thus temporarily removed from the survey. Availabilities were found in nine of the 49 properties reviewed.

The past year’s increase was driven by closings of freestanding and in-line Levitz, Bassett Furniture, Jysk and Storehouse Furniture locations ranging in size from approximately 10,000 square feet to 20,000 square feet. With Domain now in bankruptcy, its 10,000-square-foot freestanding building will go on the block this year.

Route 10. After hitting a 10-year low of 1.5% in 2004, vacancies along the 20-mile Livingston to Ledgewood corridor ascended for the third straight year, rising from 2.2% in 2006 to 3.7%. The 2007 rate was the roadway’s highest in 10 years, ending a two-year run as the region’s healthiest retail corridor.

The firm’s 2007 study uncovered 184,900 square feet of vacancies in the 4.98 million square feet studied, compared with 111,000 square feet in 4.97 million square feet a year earlier. Among the 136 properties evaluated, 19 had vacancies.

Adding to the 56,000-square-foot Levitz store in Livingston and 13,500-square-foot Carpet Depot in East Hanover that have remained empty since the firm’s 2006 study, the 2007 vacancy factor was driven upward largely by closings of a 40,000-square-foot Comp USA in East Hanover and a 16,000-square-foot Rag Shop at Denville Commons. On a smaller scale, the bankruptcy of Rockaway Bedding added two locations totaling 14,000 square feet to the inventory, but rival Sleepy’s absorbed the larger of those two spaces, a 10,000-square-foot unit in East Hanover.

Route 46/3. The 21-mile stretch of Route 46 extending from Dover to West Paterson and the adjoining section of Route 3 in Clifton registered the best performance of all six corridors during 2007, as the vacancy rate edged down to 2.1% from 2.3% a year earlier. Over the last 10 years, the Route 46 corridor’s rate has ranged from a low of 1.0% in 1999 to a high of 3.4% in 2003. The Route 3 section east of the Garden State Parkway was added to the firm’s study area in 2006 following the construction of a number of new centers.

In the latest study, the firm found 132,375 square feet of availabilities in the 6.26 million square feet evaluated, compared with 144,200 square feet in 6.27 million square feet a year ago. Openings were seen in 20 of the 177 properties studied.

The corridor’s vacancy factor was driven down during 2007 by, among other things, L.A. Fitness’ takeover of the 42,000-square-foot former Toys ‘R’ Us at the Troy Hills Shopping Center in Parsippany; and Daffy’s lease of the former 18,500-square-foot Office Max in Wayne. Additionally, a 20,000-square-foot former Frank’s Nursery site has been temporarily removed from the study, as the landlord redevelops the site into Rockaway Commons, a convenience center with approximately 50,000 square feet.

The benefits of these developments and various other new leases signed across the corridor were partially offset by closings of a 40,000-square-foot Levitz in Wayne and a 25,000-square-foot Comp USA in Totowa. As noted, the roadway’s other Comp USA, which occupied 25,000 square feet in the Troy Hills Shopping Center was snapped up by Circuit City.

Route 23. The vacancy factor on the 10-mile Wayne-to-Butler corridor expanded to 3.8% during 2007 from 3.1% a year ago, pushing the rate to just below the 10-year high of 3.9% that held firm from 1998 to 2000. Over the last 10 years, the roadway had its best performance in 2001, when the vacancy rate was just 1.1%.

R.J. Brunelli uncovered 93,564 square feet of vacancies in the 2.44 million square feet studied, versus 72,500 square feet in 2.34 million square feet a year earlier. Among the 60 properties evaluated, eight had openings.

Major vacancies arising over the past year included a pair of Rag Shop stores in Wayne and Kinnelon, and Pay Half shoes in Wayne, adding approximately 50,000 square feet to the roadway’s available inventory. Elsewhere, Ski Barn took 15,000 square feet of the 40,000-square-foot former Treasure Island space in Wayne, leaving 25,000 square feet on the market.

Route 22. Snapping a string of three consecutive years of improvements, the vacancy rate along northern New Jersey’s most heavily-retailed corridor escalated to 3.4% from to 2.4% in 2006. All told, the
study area—incorporating the 21-mile stretch from Union to Somerville, plus nearby sites along intersecting Route 202/206 from the Somerville traffic circle north into Bridgewater, as well as the nearby Route 28/287 intersection in Bridgewater—has seen its 10-year vacancy factor range from a low of 1.8% in 1999 to a high of 6.6% in 1998.

In its 2007 study, the firm uncovered 267,932 square feet of vacancies in the 7.98 million square feet reviewed, compared with 189,300 square feet in 7.99 million square feet a year ago. Availabilities were found in 26 of the 242 properties.

Major factors fueling the past year’s increase included closings of 40,600-square-foot and 20,000-square-foot Levitz buildings in Bridgewater and Union, respectively; a 25,000-square-foot Comp USA in Springfield; and a 17,000-square-foot Just Living Rooms in Greenbrook. These added to several lingering vacancies, including a 25,000-square-foot Office Max and 20,000-square-foot Furniture King, both in Union.

Those vacancies were partially offset by several significant absorptions, including an automotive service company’s takeover of the 36,000-square-foot former Sears Hardware site in Union, and Unique Thrift’s lease of a 20,000-square-foot former Office Max in Scotch Plains.

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.

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