OLD BRIDGE, N.J. (2/27/04)—After plunging to an historic low of 2.0% during 2002, the vacancy factor in retail properties along northern New Jersey’s major shopping corridors moved up to a still-robust 3.2% in 2003, according to R.J. Brunelli & Co., Inc., which has been evaluating the region’s retail real estate landscape since 1990. While vacancy rates remained under 2% on Routes 4 and 23, increases along Routes
17, 10, 46 and 22 led to escalation in the region’s overall vacancy factor.

The Old Bridge, N.J.-based retail real estate firm’s fourteenth annual study of the northern New Jersey market uncovered 807,669 square feet of vacancies among the 25.43 million square feet of space evaluated along the six highways. In Brunelli’s 2002 study, just 487,651 square feet was available in the 24.71 million square feet reviewed. Over the last 10 years, vacancies in the northern counties peaked at 6.1% in 1995 and have been below 3.7% in seven of those years.

Conducted in January 2004, the 2003 study evaluated shopping centers and freestanding buildings exceeding 2,000 square feet along the six roadways 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.

“Despite the increase from the incredibly low rate in our 2002 study, northern New Jersey has maintained its status as one of the nation’s tightest and most vibrant retail real estate markets,” said Richard J. Brunelli, president of the firm. “In a year marked by the demise of the Kids ‘R’ Us, Wiz, Zany Brainy and Today’s Man chains, this densely populated, affluent region again demonstrated its uncanny ability to cope with changes in the retail landscape, as limited opportunities for new development continue to keep the supply-demand equation in landlords’ favor.”

Although the five Kids ‘R’ Us locations in the properties studied along the six roadways were counted as vacant in the firm’s 2003 survey, Mr. Brunelli noted that the impact of those closings could take a dramatic turn for the better within the next few weeks. “It’s been rumored in the industry that a major retailer will soon be taking all nine locations in northern and central New Jersey, operating some under its own banner and subleasing the balance to non-competing retailers,” he said. “With the Kids ‘R’ Us stores averaging 23,000 square feet, this development could take upwards of 115,000 square feet off the vacancy rolls in one fell swoop.”

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

Route 17. The vacancy rate increased to 3.7% in 2003 from a slight 1.9% in 2002 and low-point of 1.5% in 2001 along the 15-mile section from Paramus to Mahwah. Nonetheless, this past year’s figure was still well below the recent peak of 6.0% in 1996 and rates of 5.7% and 5.2% in 1997 and 1999, respectively. All told, the firm’s 2003 survey found 163,094 square feet of vacancies in the 4.36 million square feet studied, compared with 76,300 square feet in 3.97 million square feet in 2002. Availabilities were uncovered in 12 of the 141 properties reviewed along the corridor, versus six in the 138 studied a year earlier

The roadway’s total footage was boosted during 2003 by the long-awaited opening of Ikea on the former Alexander’s site, adding 378,000 square feet of fully occupied space to the inventory. “Ikea has been packing its parking lot, reviving a superb site that had sat dormant until major roadway improvements could be completed at the busy junction of Routes 17 and 4,” Mr. Brunelli noted.

The increase in the corridor’s vacancy rate was due primarily to the closing of the 25,194-square-foot freestanding Kids ‘R’ Us in Paramus and a jump in availabilities at nearby Paramus Fashion Center, a 446,800-square-foot property that is in the final stages of ‘de-malling.’ The power center—whose tenants
include TJ Maxx, Bed, Bath & Beyond, and Best Buy—saw vacancies rise from 39,000 square feet in the 2002 survey to 74,000 square feet. “This increase was due mainly to the expiration of leases on small, unproductive stores in an unsuccessful interior mall area that is planned for conversion to ‘big-box’ space,” Mr. Brunelli explained. “Meanwhile, if you factor out Kids ‘R’ Us, the Route 17 vacancy factor would slip to 3.2%.”

Route 4. Vacancies edged up to 1.8% during 2003 from 1.7% a year earlier along the three-mile segment between Paramus and Fairlawn 2001—an area where the rate has been under 2% in six out of the last 10 years.

The firm’s 2003 survey uncovered only 18,500 square feet available in the 1.05 million square feet of space situated along this portion of the roadway. Only three vacancies—ranging from 5,000 to 7,000 square feet—were found in the 47 properties evaluated, compared with five openings in 46 properties in the 2002 study.

Route 4’s inventory will get a slight boost during 2004, as construction proceeds on a new 13,000-square-foot center. “This property is reportedly already 100% pre-leased,” Mr. Brunelli noted, “underscoring the tight conditions along this roadway.”

Route 23. The vacancy factor along the 10-mile Wayne-to-Butler stretch of Route 23 remained unchanged at a slight 1.6% during 2003 and 2002, following a record low of 1.1% in 2001. Brunelli’s 2003 study found 27,700 square feet of vacancies in the 1.71 million square feet that was evaluated. Openings were found in five of the corridor’s 54 properties, compared with four in 53 the previous year.

The single largest vacancies, 10,000 square feet and 8,000 square feet, were found in Riverdale Plaza and Brentwood Plaza in Wayne, with the latter property losing a Zany Brainy store in the wake of parent company FAO, Inc.’s bankruptcy.

“A new, 40,000-square-foot center is now under construction just across from Brentwood Plaza on the northbound side of this divided highway,” Mr. Brunelli said. “Given the lack of availability along Route 23, it’s no surprise that this center is reported to be substantially pre-leased at high rental rates.”

Route 46. After tumbling to 1.5% in 2002, this corridor’s vacancy rate escalated to 3.4% during 2003. The firm’s current survey found 196,674 square feet of vacancies in the 5.82 million square feet evaluated; availabilities were present in 18 of the 159 properties reviewed.

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, where 63,000 square feet of vacancies include former Wiz and Today’s Man locations that remained unspoken for since the last survey. “With a lack of exposure to Route 46, these two spaces are considered secondary locations and, consequently, have been very difficult to lease,” Mr. Brunelli said.

Elsewhere, the 2003 vacancy factor was driven upward by 15,000 square feet of availabilities in Clifton’s Rowe Manse Center (a property that was 100%-leased in the 2002 survey), as well as sizable vacancies in two properties on the western edge of Route 23 that had also been full last year. Some 38,000 square feet has yet to be leased in a 157,000-square-foot center in Rockaway anchored by Shop-Rite. “This property is still under redevelopment, as the landlord continues to work on leasing new spaces in the area where a former Ames discount department store building had been demolished,” Mr. Brunelli said. Additionally, the survey found 19,500 square feet available in the 100,000-square-foot Ledgewood Circle Shopping Center anchored by Ramsey Outdoor.

Route 10. The vacancy factor rose from 1.9% in 2002 in 2.4% in 2003 along this roadway’s 20-mile Livingston to Ledgewood corridor. Notably, the rate for this shopping area has now held under 3% for six consecutive years. According to the 2003 survey, 111,823 square feet was available in the corridor’s 4.62 million square feet of space, with openings in 12 of the 126 properties—up from 10 in the same number of sites the prior year.

“Route 10’s increased vacancy rate was triggered almost entirely by the closings of Kids ‘R’ Us and Zany Brainy stores, putting over 37,000 square feet on the market in two properties,” Mr. Brunelli said. “The effects of these two vacancies were partially offset by absorptions at other centers.

“On the new development front, the Mayor of East Hanover recently announced that Wegman’s is working on a deal to build along Route 10,” he continued. “If successful, this big-box project would follow the opening of Target during 2002 on an East Hanover parcel that offered no direct visibility to the roadway. Target’s willingness to take an obstructed site set so far back from the highway points to the difficulty of finding locations on Route 10.”

Route 22. Northern New Jersey’s most heavily-retailed corridor continued its roller-coaster ride, as the vacancy rate grew to 3.7% from 2.5% in 2002. Over the last 10 years, the highway’s rate has been as high as 7.3% in 1997 and as low as 1.8% in 1999. The R.J. Brunelli survey covers the 21-mile stretch ranging from Union to Somerville, as well as nearby space along intersecting Route 202/206 from the Somerville traffic circle north into Bridgewater, plus the nearby Route 28/287 intersection in Bridgewater.

The firm’s 2003 study uncovered 289,878 square feet of vacancies in 7.89 million square feet of space, with vacancies in 25 of the 233 properties reviewed. In 2002, 24 of 234 properties had openings.

This past year’s increase was triggered largely by the closings of 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. Other major vacancies included the closing of a freestanding 14,000-square-foot home furnishings store in Springfield; 12,000-square-feet of openings in the formerly full-leased Bridgewater Promenade power center; and 15,000 square feet of remaining space in the former freestanding 40,000-square-foot Wiz store at the Somerville Circle, where Electronic Expo took 25,000 square feet.

These and other closings evolving during 2003 added to several lingering major vacancies from 2002, including the 35,000-square-foot, freestanding former Sears Hardware store in Springfield, and the 40,000-square-former Lord & Taylor Clearance Center in North Plainfield. At the latter property, an additional 7,000 square feet of specialty shop space fronting the Lord & Taylor building became available in 2003.

The impact of these vacancies was softened by a number of key absorptions. Most notably, T.J. Maxx took the remaining 25,000 square feet in the former Bradlees building behind Bridgewater Commons, joining Borders and Best Buy stores that had opened in 2002. The Bridgewater Commons area will soon also be home to a new, 90,000-square-foot lifestyle center.

In a key transaction that did not impact the corridor’s vacancy factors in 2002 or 2003, P.C. Richard has leased the landmark 80,000-square-foot ‘flagship’ building in Union. At the time of the 2002 survey, The Wiz was conducting a going-out-of-business sale in that location. Just after the 2003 survey was completed, P.C. Richard moved to the larger space from its nearby 22,000-square-foot store adjoining Staples, with R.J. Brunelli & Co. now serving as exclusive broker for its former location.

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.

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