With supply and demand in check and retail sales on the rise, New England retail real estate is enjoying one of its best times in recent years. So much so that a number of national and regional retailers are finding it profitable to enter as well as expand in the six-state area.

"The economy in New England has turned the corner," says Tim Colby, senior regional manager for Philadelphia-based Pennsylvania Real Estate Investment Trust. "We have seen strong sales this year. The days of the early 1990s are over. Recovery has matured in metropolitan markets, and it's now spreading to secondary markets."

Tom DeSimone, executive vice president and chief operating officer of Chestnut Hill, Mass.-based S.R. Weiner & Associates Inc., says the economy in most New England states remains robust. "Retail sales seem to be extremely strong with very few exceptions," he says. DeSimone adds that there has been a fair amount of retailer consolidation, which has opened the door to others looking for space. "You have fewer retailers, but they are stronger and are capturing the market here."

Retailers aren't the only ones interested in the region. In February, Indianapolis-based Simon Property Group entered into a definitive agreement to acquire a portfolio of up to 14 regional malls from Newton, Mass.-based New England Development Co. The $1.725 billion deal, which is expected to close third quarter 1999, includes 10 properties in Massachusetts, two in New Hampshire and one each in Connecticut and Virginia, which together total approximately 10.6 million sq. ft.

Other real estate investors and financiers also are scouting properties across New England, says Todd Stressenger, a senior director in the Boston office of Holliday Fenoglio Fowler LP, a Dallas-based real estate investment banking firm.

"The financing market remains strong for shopping centers, especially those anchored by strong retailers such as Wal-Mart, Home Depot and Target," Stressenger says. "Life companies and CMBS (commercial mortgage-backed securities) lenders are very interested in funding retail properties in New England."

Signals looking good In select markets throughout the region, signs further indicate that retail is healthy and continues on the upswing. According to an annual study by Burlington, Mass.-based Finard & Co., there is evidence of a rebounding retail market in eastern Massachusetts. Vacant retail space in the state's eastern portion, excluding the Boston urban core, was 7.0% in 1998, down from the 1997 rate of 9.2% and slightly lower than the 1996 rate of 7.2%.

"By most accounts, 1998 was a good year for retail real estate in eastern Massachusetts," says William J. Beckeman, a partner at Finard & Co. who supervised the research. "The retail marketplace grew by 2.3 million sq. ft. in 1998. Coupled with a 2.3 million sq. ft. decline in vacancy, the result was a net absorption of 4.6 million sq. ft., by far the largest net absorption in the last three years."

The report, released last month, also showed that new construction and expansion of existing structures in eastern Massachusetts led to a 1.9% increase in the supply of retail space, yielding a total supply of 123 million sq. ft. as of early 1999.

The retail real estate market also remains strong in Connecticut, says Brad Hutensky, president and principal of The Hutensky Group, Hartford, Conn. One of the trends is the redevelopment or repositioning of properties that are in trouble. This is especially true in the Hartford area.

Gregory Boulos, a partner in The Boulos Co., Portland, Maine, says Maine's retail market remains vibrant as well. "Retail centers are staying full, and the market is healthy," he says. "Supply and demand are pretty well in check. You will see some development in the future, but it will be evenly paced."

Maine is dominated by Portland, adds Colby of Pennsylvania Real Estate Investment Trust. "Once you get north of Portland, you find less population density," he says. Although Maine is at the end of distribution channel and thinly populated, some national retail chains such as the Gap and Old Navy are still moving northward.

Retailers on the move... The Bon-Ton Stores Inc., a York, Pa.-based department store chain, recently opened one store in Westfield, Mass., and is planning to open other locations at University Mall in Burlington, Vt., and Steeplegate Mall in Concord, N.H. Both are expected to open in November.

Dallas-based Gadzooks, a specialty retailer of casual apparel and related accessories, opened last fall at North Shore Mall in Peabody, Mass., and at Silver City Galleria in Taunton, Mass. Taco

Del Mar, a Seattle-based eatery, opened its third restaurant in the greater Boston area recently and is planning to open 15 franchises in the area within the next two to three years.

Adrienne Davis-Brody, senior vice president of marketing for Newton, Mass.-based WellsPark Group, says several manufacturers also are opening stores in New England. Aveda Lifestyles and MAC Cosmetics will be joining Atrium Mall in Chestnut Hill, Mass., this fall.

Food and entertainment concepts are yet another group that is entering the region in full force. A 20-plex Loews Theatre recently was added to Liberty Tree Mall in Danvers, Mass., and a 560-seat food court was added last year to The Mall of New Hampshire in Manchester, N.H.

Although there is not a significant amount of population growth in the region, the retail landscape is constantly changing as new concepts and goods are introduced. "Retailing in the region is very active because of new categories," Davis-Brody says. "We see a lot of good things happening in the market."

... filling vacated spaces New and expanding retailers are filling gaps left by closings and liquidations of several major retailers during the last 20 months. The casualty list includes Caldor, Lechmere, Rich's Department Store, Somerville Lumber, Grossman's and Nobody Beats The Wiz.

Robert Rechner, leasing director for the New England region of Boston-based Net Properties Management Inc., says retailers such as Lechmere and Caldor that closed their doors have created opportunities for growing national chains.

"The Lechmere demise created opportunities for retailers such as Best Buy, which is taking a number of retail locations, existing real estate as well as selecting quality premier sites," Rechner says. "We are seeing a lot of activity with larger-box users, such as Bob's Store, Linens 'N Things, Marshalls, T.J. Maxx, Staples and OfficeMaxx."

Target, a division of Minneapolis-based Dayton-Hudson Corp., is planning to open 12 to 14 stores in the region in the near future. And Wal-Mart has signed an agreement to purchase 13 former Caldor sites, including two in New York, adds Bruce Kaufman, a partner, retail, at Finard & Co. "The Wal-Mart factor will be felt later this year and early next year."

Office Depot has opened three stores in New England and is looking for more sites, Kaufman continues. "Although Staples is very well-positioned in the area, Office Depot could have an impact on it. They will have tough competition."

Michael Antkies, president of Danbury, Conn.-based Michael Antkies Real Estate, agrees that big-box users are coming and going all over New England. "It's an ever-changing market," Antkies says. "We find some markets don't have enough locations."

In the drugstore category, Rechner of Net Properties says that Walgreens and CVS are continuing to move to new, freestanding stores at a very aggressive pace.

The area's supermarket chains also are very busy, says Tim Tully, a managing director at Ulin & Holland Inc., a Boston-based investment banking firm. "There is a mad dash among the largest food retailers to be among the top three retailers within each major market in the world. If one does not achieve this status, it will be very difficult to achieve economies of scale and have access to new know-how and experience," he says. "We have seen signs of this trend with Ahold USA Inc.'s (Atlanta) acquisitions of Stop & Shop, Giant Foods, Pathmark and other large, East Coast food retailers."

Shaw's Supermarkets Inc., well-known to New England shoppers and a subsidiary of England-based J. Sainsbury PLC, last year agreed to acquire Cambridge, Mass.-based Star Market Co., which operates 53 supermarkets primarily in the greater Boston area. The acquisition will strengthen Sainsbury's leadership position in New England, putting it just behind Stop & Shop, which has slightly over one-fourth of the region's grocery market.

Hutensky says supermarkets also are touting inner cities. Shaw's recently opened a 79,000 sq. ft. store in an inner-city neighborhood in New Haven, Conn. It's also the first supermarket to open in the city of New Haven in some years, Hutensky says. "They are realizing that inner-city neighborhoods are tremendous opportunities for growth, while suburbs are often saturated."