Will West Coast Retailer Migration Continue as Northeast Rents Rise?
When the nation’s retail industry recently congregated in New York City for ICSC’s National Deal Making conference, much of the discussion centered on the evolving mindset of consumers throughout the country. For retail real estate professionals in the Northeast, this conversation is vital.
An increasing number of upwardly mobile, health-conscious, mass transit-minded individuals migrate to cities along the East Coast with an expanding job market, such as New York City, where growing technology, advertising, media and information technology (TAMI) sectors continue to attract new residents. As a result, the region’s retail market is reacting accordingly.
Forward-thinking retail brands that strive to be ahead of the curve are migrating east to establish a retail environment in the Northeast that has been a mainstay of West Coast cities, where the TAMI sector has long driven market trends. We’re seeing a proliferation of new brands breaking into different markets throughout the Northeast and, in many cases, quickly expanding their footprints.
From novel grocery concepts that offer healthier product selections than traditional supermarkets to West Coast-based women’s fitness brands and national value stores that can’t find space fast enough, the Northeast retail market is red hot with retail concepts. Fitness brands want spaces in the 1,500-sq.-ft. to 3,500-sq.-ft. range, value store concepts need around 10,000 sq. ft., and supermarkets have a “sweet spot” of about 36,000 sq. ft.
Savvy retailers are seeking out locations in vibrant, walkable downtowns, pushing asking rents higher in many locations. As a result, many are setting up shop in “up-and-coming” municipalities that have begun to attract the retailers’ preferred demographics while still offering manageable rental rates – sometimes as much as 50% less than rents in similar, but more established, municipalities.
For example, in my home state of New Jersey, I recently worked with a couple of women’s fitness companies to bring their concepts to two of the state’s burgeoning locales. In downtown Somerville, where rents range from $18 to more than $40 per square foot NNN, California-based Studio Barre just opened its first New Jersey location.
Meanwhile, another California-based fitness center, is aggressively expanding throughout the region, having most recently focused on Morristown, which boasts one of the most rapidly evolving downtown areas in all of the Northeast. There, rents have climbed as high as $70 per square foot NNN for the most desirable retail space around the Morristown Green, a popular and historic park.
It’s inevitable that the increased demand for space in these markets is resulting in rising rents, up by more than 10% in several downtown submarkets.
The question becomes: Will retailers remain attracted to these up-and-coming East Coast areas after recognizing that locating in established markets may mean a steep admission price, or will they see the value in paying more for instant access and splash? All we can be certain of right now is that this is a very exciting time to be in retail in the Northeast.