The Hardy Northeast
Some parts of the country are still waiting for economic recovery, but the Northeast is already enjoying a return to financial prosperity.
The Northeastern U.S. offers a consumer base that is better educated and wealthier than that of many other areas. As a result, vacancies in Northeast centers tend to be low, giving landlords leverage in determining rents and tenant mixes.
On the flip side, a shortage of developable land is forcing Northeast shopping center operators to focus on redevelopments, improvements and additions to existing properties, rather than on building new developments. Other regional trends include strong consumer desire for grocery, dining and entertainment options.
Health Craze
New York City-based real estate investment trust Brixmor Property Group is responding to what it sees as a very healthy Northeast retail real estate market.
“The retail real estate industry remains robust in the Northeast given the continued lack of new supply and high barriers to entry in the Northeast,” said Brian Finnegan, executive VP leasing for Brixmor. “The Northeast continues to be one of the stronger retail markets in the country with continued demand for space from both local and national retailers and limited new supply in the market keeping vacancy rates in check.”
Keeping up with this trend, in the past 12 months Brixmor executed 144 new leases totaling 628,000 sq. ft. in the Northeast. In total, Brixmor operates 139 properties totaling 21.4 million sq. ft. of gross leased area in Connecticut, Delaware, Massachusetts, Maryland, Maine, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Vermont.
A good example of Brixmor’s Northeast strategy is Rockland Plaza in the New York MSA, which is part of the company’s “Raising the Bar” value-creation initiative having recently been remerchandised.
Remerchandising has included expanding the existing Marshalls to 43,000 sq. ft. and expanding the existing Modell’s Sporting Goods to 20,000 sq. ft. by absorbing adjacent vacancies. As these anchors opened, small shop leasing was energized with the remerchandising of a former Eastern Mountain Sports with a 14,000-sq.-ft. Lemon Pop, and six additional small-shop leases, including Destination Maternity, Dress Barn, Five Below and Noodles & Co.
Money Talks
The Northeast Corridor offers a lot of higher-income consumers who like to shop, making it a highly competitive destination for retailers looking to lease space.
“The market between Philadelphia and Boston is really strong,” said Chris Ressa, senior VP leasing, Northeast and Midwest, for New York-based DLC Management. “Retail sales are higher than in most other markets, and retail tenants are trying to get in.”
From a developer perspective, it is difficult to build in the Northeast market due to a scarcity of available dirt, creating opportunities for owners that buy existing shopping centers versus developers that are solely focused on development. DLC operates 30 Northeast centers in New Jersey, New York, Pennsylvania, Connecticut, Maine and New Hampshire, totaling 5.2 million sq. ft.
“We are redeveloping and acquiring in all our existing markets,” said Ressa. “In the Northeast, we are also attempting to find untapped value-add opportunities in our existing portfolio. It’s a market where we’re doing a lot of our major redevelopments.”
The Court at Deptford, a 361,000-sq.-ft. outdoor center in Deptford, New Jersey, is an example of the types of acquisitions DLC is purchasing in its Northeast portfolio. Serving prime southern New Jersey communities such as Deptford, Cherry Hill and Atlantic City, the center provides consumer access to a lot of exclusive retail brands in the market.
Burlington Coat Factory opened in March 2015, and Party City opened in summer 2015. The Court at Deptford is also opening a Shoe Carnival in spring 2016 and a Hobby Lobby in summer 2016.
No Vacancy
As a commercial real estate brokerage firm specializing in the retail sector, Philadelphia-based Metro Commercial Real Estate Inc. has an in-depth view of the Northeast retail real estate market.
Metro represents more than 100 retailers actively expanding coast-to-coast. In addition, the company has more than 380 exclusive listings, totaling more than 31 million sq. ft. which it leases and/or manages throughout the Northeast.
“In the last 18 months, we have been engaged to assist in the leasing of six redevelopments of existing big box-anchored shopping centers, totaling more than 5 million sq. ft.,” said Tom Londres, president, CEO and principal of Metro. This reflects what Londres described as a larger trend of a tight market in the Northeast.
“Vacancy rates are down under the single digits,” he said. “There are not a lot of new construction projects, so redevelopments are in favor now.”
An example of the type of center Metro is currently leasing is a mixed-use urban project at the intersection of Broad Street and Washington Avenue in Philadelphia. Slated for a late 2017 opening, the mixed-use project will feature 100,000 sq. ft. of retail space, 600-plus retail parking spaces and two residential towers totaling up to 800-plus residential units.
Contemporary Approach
Privately held commercial real estate and development firm National Realty & Development Corp. (NRDC) operates 70 retail real estate projects in the Northeast, primarily in New Jersey, Connecticut, New York and Pennsylvania. With a total of 20 million sq. ft. of privately held Northeast real estate property, NRDC knows the market well.
“The Northeast real estate market in the last five years has seen very low cap rate valuations,” said John Orrico, president of NRDC, based in Purchase, New York. “The best way to grow an asset’s value is through redevelopment.”
Orrico said NRDC tries to update its retail tenancy in the Northeast market to stay current with shopper interests.
“We continue to update our tenant mix to meet the needs of the communities in which our centers operate and deliver to these communities the emerging trends in retail. Off-price retail is creating demand.”
NRDC has hardly abandoned the idea of developing new Northeast centers, however. For example, one new project the company is currently developing in the Northeast is The Shoppes at Middletown. Slated for a 2017 opening, the center will be located in Middletown, New Jersey, and feature 380,000 sq. ft. of premier space. Tenants will include a specialty grocery store, upscale national retailers and restaurants, local boutique shops and a luxury cinema with a dine-in theater experience.
Improvement Plan
New York City-based real estate investment, development and management firm Olshan Properties operates 10 Northeast shopping centers, including eight in New York and one each in New Jersey and Pennsylvania, totaling roughly 2 million sq. ft. From this informed vantage point, Olshan sees an ultra-competitive market where improving existing center assets often takes precedence over new development.
“We continue