While darkened big-box stores remain problematic for the state's retail real estate sector, absorptions in the central New Jersey market have triggered improvements in the vacancy rate and sparked new developments, according to an annual survey by Old Bridge-based retail real estate broker R.J. Brunelli & Co. LLC
The survey, conducted in April, found 2.79 million square feet of vacancies within the 30.53 million square feet of leasable area examined along four highway corridors, which dropped the Central Jersey retail vacancy rate to 9.1 percent from 10.5 percent a year ago and 9.8 percent in 2010 — compared to 3.4 percent in 2008.
According to the firm's president, Richard J. Brunelli, while big-box stores exceeding 20,000 square feet represented 47.1 percent of the region's available space — with 91.4 percent of those lots staying dark for at least a year — Central Jersey's declining vacancy rate "is largely due to positive activity on the big-box front, where full or partial absorptions of 10 spaces more than offset three fresh vacancies."
In comparison, the firm's study of North Jersey's retail real estate market found big-box store closures negated the benefits of any absorptions, which edged up the vacancy rate to 8.2 percent, from 8.1 percent a year ago and 8 percent in 2010.
According to Chuck Lanyard, president of the Paramus-based retail brokerage firm The Goldstein Group, the Central Jersey retail market has experienced more big-box absorptions in the past year than North Jersey because it has "a really good highway connection and a greater, wider range for people to travel to get to these retail spaces than the more spread out northern part of the state."
But Brunelli, in a statement, said big-box absorptions in Central Jersey could be short lived, noting that "some retailers will not modify prototypical stores and, therefore, will only consider new construction … anchor(ing) several new shopping centers."
However, Lanyard said Central Jersey landlords are increasingly negotiating "carve outs" of spaces that supermarkets once occupied with different types of retailers, like health clubs, or stores that have downsized their space needs as they move more operations online, like Office Depot.
"Today, there are more tenants in the 15,000- to 20,000-square-foot range than taking up 50,000-square-foot spaces," Lanyard said. "In this ever-changing retail landscape, we're seeing the retailer and landlord rethinking and retooling how to be successful. With that, landlords of big boxes are agreeing to host viable tenants in a smaller space."
But Brunelli said two new projects in East Brunswick and Marlboro by Pagano Development show that "new construction, with appropriate pre-leasing, is financially feasible once again," so rather than future increased absorption of existing space, he expects "a limited number of new developments to be announced over the next six months," in a statement.
"The drop in central New Jersey's retail vacancy rate … confirms that the retail space market has bottomed out," Brunelli said in a statement. "Interest rates have never been lower, and this bodes well for new construction."
The study evaluated shopping centers and freestanding buildings of at least 2,000 square feet, including restaurants, auto service facilities and closed auto dealerships deemed suitable for retail use. Regional malls and centers under construction or major redevelopment were excluded.