Flight to Quality a Common Theme for Expansions and New Developments
By Matthew K. Harding, President
The Northeast retail real estate market is robust heading into the heart of 2015. As a result of assertive leasing by tenants looking to establish or expand their footprint here, much of the available prime retail space has been absorbed – and what remains is commanding higher pricing.
As a result, an emerging 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. Notably, we are seeing stepped-up expansion of existing shopping center properties. For new projects, flight to quality is a common theme, and developers are focused on opportunities in established retail corridors and those that involve the strength and stability of a grocery anchor.
Several examples of the expansion trend can be found within Levin’s own leasing and management portfolio. We recently broke ground on an expansion of St. Georges Crossing, a fully leased, 317,000-square-foot property in Woodbridge, N.J. After arranging a long-term lease with T.J.Maxx, we are constructing a 23,000-square-foot building for the fashion retailer on a newly acquired adjacent parcel of land there. Similarly, at Mid-Town Plaza in Middletown, Pa., we orchestrated the purchase of an adjacent parcel to accommodate the construction of a 7,380-square-foot AutoZone.
Additionally, at the 80,000-square-foot Clifton Plaza in Clifton, N.J., we leased and delivered a 15,000-square-foot, newly constructed building for Blink Fitness. And in Flemington, N.J., we orchestrated a lease with HomeGoods at The Shoppes at Flemington and then oversaw approvals, contractor sourcing and construction of a 22,000-square-foot, free-standing addition.
Regarding the flight-to-quality play, 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 Southern New Jersey's Burlington County, the ShopRite-anchored Bordentown Plaza provides a great example of a shopping center being redeveloped to retain competitive positioning in an established retail corridor. ShopRite is slated to undergo a complete renovation and expansion, and the entire, 179,000-square-foot center will be updated and repositioned. As the property's leasing agent, we are marketing more than 100,000 square feet of existing space as well as proposed pad sites.
The success of recently completed ground-up and renovation projects are bright spots in our region. 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.
As always, 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 in secondary positions. Landlords are becoming more creative in their approach to leasing these shopping centers, and working hard to distinguish their properties as attractive alternatives.
The outlook for Northeast retail remains nothing but positive through the balance of 2015 and beyond. Demand from national, local and franchise companies in active categories – including grocers, affordable fitness chains, off-price retailers and fast-casual restaurants, among others – will continue to drive vacancies down and rental rates up. And the level of development activity – both for new projects and expansions/renovations – speaks to growing confidence in the future of the retail sector here.