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Retail strong in N.J., but vacancy rate shows slight uptick

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Occupancy at malls and outlet centers remains the strongest among northern New Jersey retail properties, outpacing smaller shopping centers and freestanding stores, according to analysts at the CoStar Group.

In its midyear market report, the commercial real estate research firm found conditions to be mostly flat for the region. During the second quarter, the total amount of occupied space decreased slightly by about 330,000 square feet, with vacancy rising from 6.6 to 6.8 percent.

But the report also showed that malls and specialty centers, which include outlets and airport retailers, had the lowest vacancy in the region, said Mark Berry, a senior real estate economist with CoStar. Both classes had 2.8 percent vacancy, the report said, while other retail property types had rates between 6 and 10 percent.

That means small shopping centers not anchored by big-box stores, strip malls and freestanding retail buildings are among the weakest property types. Among those groups, Berry said, the biggest challenges are faced by community centers anchored by grocery stores, which have trouble competing with stores like Target, Wal-Mart and Costco.

"The New York area is somewhat protected versus other regions of the country," he said, referring to the expansion of big-box grocery retailers. "But you're continuing to see a migration of everyday necessity, especially food, shopping expenditures toward big-box tenants. And they continue to grow sales at the expense of the guys in line."

The saving grace for neighborhood shopping centers are the high barriers to entry for such large retailers in New Jersey, Berry said. That has resulted in little new construction.

CoStar's report covers northern Bergen County to Ocean County, surveying 342 million square feet of retail inventory. Within that region, vacancy has crept up from 6.4 to 6.8 percent since midyear 2010.

Berry said consumers' lack of confidence in potential income growth, job security and employment opportunities continues to bear on their spending decisions.

"I think ultimately you're seeing people migrating toward more value-oriented types of retail," he said. "And certainly, there's a national trend that's gravitating toward the Internet, as well. These are playing out in New Jersey."

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