Stronger Fundamentals, Stepped-Up Construction and Investment Mark Progress
Moving into the final months of 2014, the outlook for retail in the Northeast remains quite positive. We are seeing demand from national, local and franchise companies across a broad range of categories. Vacancies are declining and rents are trending up at quality properties. Importantly, developers have again become active in our region, which indicates growing confidence in the future of the retail sector here. Improving fundamentals also have led to an increase in investor interest, and we are seeing more properties trading than in the recent past.
Leasing has picked up markedly among tenants looking to establish or expand their footprints in the Northeast. Grocers, affordable fitness chains, off-price retailers and fast-casual restaurants are among the most active categories. Specifically:
- Although there are a limited number of supermarket chains adding locations, ShopRite, Stop & Shop, and Whole Foods are highly active within the marketplace.
- Gym concepts like Blink and Retro Fitness and others continue to expand rapidly here.
- Off-price retailers tend to have a very wide demographic reach, making them extremely popular with a broad range of consumers; in turn, chains such as Dollar Tree, T.J.Maxx, dd's Discounts and HomeGoods continue to gain traction.
- Fast-casual eateries like Chipotle Mexican Grill and Noodles & Company are expanding as well.
In turn, much of the "good" retail space has been absorbed - and what remains is commanding higher pricing. Well-located shopping centers with a strong tenant mix and curb appeal continue to draw retailers, consumers and investors. At the same time, we see some strengthening in the demand for those properties and those in secondary positions (either because of location or other fundamentals.) Landlords are becoming more creative in their approach to leasing these shopping centers, and are considering a wide variety of potential uses for the space.
The growing supply/demand imbalance for Class A space is beginning to create some barriers to entry for retailers in our market while also spurring an increased construction pipeline. Flight to quality is a common theme among retailers looking at new projects. Developers are focused on opportunities in established retail corridors, as well as projects that involve the strength and stability of a grocery anchor. Another development trend worth noting involves the stepped-up expansion of existing shopping center properties.
Within our leasing and management portfolio, Holmdel Crossing, a 110,000-square-foot retail development on Route 35 in Holmdel, N.J., is a great example of a new project in an established retail corridor. Population density, income levels and impressive daily traffic counts have led to the success of a number of neighboring assets and the local presence of some of the largest names in retailing today.
Illustrating the aforementioned expansion trend, Stafford Park, a thriving, 650,000-square-foot shopping center in Manahawkin, N.J., is approved for another 195,000 square feet - including several prime pad sites. The retail portion of Stafford Park includes anchor tenants Costco and Target. Other tenants include PetSmart, Dick's Sporting Goods, Best Buy, Ulta and Olive Garden.
In Woodbridge, N.J., at the 317,000-square-foot St. Georges Crossing, we will be constructing a 23,000-square-foot building for T.J.Maxx on a newly acquired adjacent parcel of land. Similarly, at Mid-Town Plaza in Middletown, Pa., we have orchestrated the purchase of an adjacent parcel to accommodate the construction of a 7,380-square-foot AutoZone. Additionally, at the 80,000-sqaure-foot Clifton Plaza in Clifton, N.J., we have delivered a 15,000-square-foot, newly constructed building for Blink Fitness, which will be opening soon.
The success of recently completed ground-up and renovation projects are bright spots in the Northeast retail real estate market. And while we will continue to see quality inventory added to meet growing demand, the maturity of the market, combined with lengthy approval and building processes, will keep things in check. In other words, we do not anticipate oversupply anytime in the near future.
As such, we expect the market's stability to increase - gradually, not rapidly - over the next couple of years. A continued low interest rate environment bodes well for the positive construction and investment activity we are seeing, and, as such, we will be keeping a close eye on that critical driver in the months ahead.