Sometimes slow and steady are good. Take the retail real estate markets in New Jersey, Pennsylvania and Delaware. Scant population growth andhave put the states in a position to glide through turbulent times.
The region may have missed out on the late 1990s building binges, but it is not experiencing a massive falling out, either. In fact, in the past several months, many retailers have targeted the region for expansion.
“You've got a lot of stability in those areas,” says Bernard J. Haddigan, managing director and national director of the national retail group with Marcus & Millichap. “They're older and more mature, and they haven't had the overbuilding that typically runs along with population growth.”
Wal-Mart goes urban in Jersey
In New Jersey, a dense population of 8.5 million — the vast majority of whom live in the north and central parts of the state — and relatively high wealth have minimized a recessionary hangover. According to a 2000 report by the U.S. Department of Commerce's Bureau of Economic Analysis, four New Jersey counties ranked among the top 15 in the nation in per-capita income with more than $50,000 each.
Among others, Wal-Mart, Target, Kohl's, Lowe's and Home Depot are opening stores in the state. Like many, Wal-Mart is seeking infill locations. This summer, it opened a store at a shuttered Bradlees location in Saddle Brook, only a few miles from Manhattan. Heretofore the discount behemoth had avoided such locations, considering them too pricey, says Tod Heller, vice president of leasing and marketing for Starwood Heller in Edgewater, N.J. “I think they realized that even though they'd be paying anywhere from 30% to 300% more for land closer in, they'd be doing 300% more business because of the population density,” he says.
Other expansions include The Container Store, which opened itsy first location in Paramus, while Best Buy intends to put four new stores in central New Jersey, according to Grubb & Ellis' mid-year market report.
The growth has been enough to blunt leaps in vacancy. According to R.J. Brunelli & Co. of Old Bridge, N.J., all but one major retail corridor had vacancy of less than 6% at the end of 2001, a rate largely unchanged from the previous year. Also, rents between $12 and $40 per sq. ft. have remained flat over the past year amid an increase in competition and a decrease in consumer spending, according to Grubb & Ellis.
But retailers say New Jersey's recently adopted business-tax increase could increase their costs dramatically. Gov. James McGreevey said the tax was increased to eliminate loopholes that allowed large companies to pay no more than the minimum corporate tax of $200 per year.
At least one retailer, Cincinatti-based Federated Department Stores, is up in arms. The chain says the new tax codes will increase its Garden State taxes to $10 million this year from $4.4 million in 2001. To offset the tax hike, Federated announced it will lay off 50 workers, cancel expansion plans and consider closing some of its 37 New Jersey Macy's and Bloomingdale's stores. McGreevey responded to Federated's protests by accusing the retailer of using unethical accounting practices to avoid paying taxes., according to a report by the Associated Press.
New York officials are already circling like buzzards in hopes of drawing Federated and other chains away. Daniel Walsh, president and CEO of The Business Council of New York State Inc., wrote in a letter to Federated CEO Jim Zimmerman, “New Jersey may have succumbed to the illusion that higher taxes can solve budget problems. New York did not. Faced with the same budget pressures and the same special-interest calls for higher taxes, New York stood its ground.” Whether Federated will act on its threat and whether it will take other retailers from the state when it goes remains to be seen.
Infill in Philly
During the past 10 years, the county of Philadelphia's population has waned while surrounding suburbs have gained. Between 1990 and 2000, for example, population in the metro area increased by roughly 200,000, or about 4%, to some 5.6 million, according to the U.S. Census Bureau, while Philadelphia proper lost some 68,000 people, also about 4%, to 1.52 million. Recently, however, Philadelphia's downtown population has grown as warehouse-to-loft conversions and new residentialhave attracted empty-nesters and young workers to the center city, says Jeff Algatt, regional manager in Marcus & Millichap's Philadelphia office.
Not only has downtown's revival convinced retailers such as Gap, Banana Republic, Urban Outfitters and Old Navy to either expand or locate there, it also has netted a surprising yet pleasant result: supermarkets. “That kind of development hasn't happened in 15 years,” Algatt says, identifying Safeway and Fresh Fields as two of the newcomers. Room to expand could become even more plentiful for grocers and big-boxers as bankrupt discounter Ames vacates its 67 Pennsylvanian anchor spots.
Downtown rents are healthy, too. Along Walnut Street, a high-end shopping corridor, retail landlords are generally fetching between $30 per sq. ft. and in excess of $40 a sq. ft. Out in Philadelphia's suburbs, rents range between $15 to $18 per sq. ft. in existing centers, and space in new projects is going for $18 to $22 per sq. ft., Algatt says. It's out there that you'll find Wal-Mart, Target, Lowe's and the other usual suspects charging hard for new sites, says Kevin McClernon, a first vice president with CB Richard Ellis in the Philadelphia area.
With only a slight uptick in vacancy to about 6.5%, the region's stability is attracting would-be buyers of shopping centers. McClernon credits the acquisition interest to Philadelphia's conservative business environment, which has held development in check. The power center construction wave that hit other parts of the country over the past few years failed to materialize in Philadelphia. “We got some of it, but not massive amounts,” he says. “It turned out to be a good thing, because we're not seeing gross amounts of space being thrown back on the market.” While it was tough to find sellers over the summer, McClernon expects to see power centers on the market this fall.
The biggest question in Philadelphia involves Simon Property Group's $329 million family entertainment proposal at Penn's Landing on the Delaware River. The Indianapolis-based real estate investment trust's plan calls for a mall and children's museum, and Simon has been working on the project with the Delaware River Port Authority for five years. But the company's prolonged silence and inactivity is fueling doubt throughout the halls of local government. In addition to exploring other ideas and potential developers for the site, officials representing the city in July gave Simon an Aug. 26 deadline to make a binding commitment to build the project or lose its development rights.
Locally based PREIT, which recently completed the $25 million renovation of its flagship Willow Grove Park mall, is also sitting on an aborted joint venture project — Pavilion at Market East in Center City. The site, orginally planned as a high-tech entertainment center anchored by a DisneyQuest virtual theme park — is being filled in to become a parking lot until PREIT finds a more viable development plan for it.
Pittsburgh makes a comeback
To the west, Pittsburgh is enjoying a renaissance despite losing 1.5% of its population, now 2.3 million, between 1990 and 2000. Government and private investors are pouring some $3 billion into the area in the form of two new stadiums and a new convention center, and university, hospital, bank, entertainment and mixed-use developments.
That's helping to attract new national stores and restaurants to the city, including Hard Rock Café, Joe's Crab Shack and PF Chang's, says Herky Pollock, executive vice president of CB Richard Ellis in Pittsburgh. One noteworthy infill project that opened last fall and still under development on the south side of the Monongahela River is The Waterfront, a $300-million mixed-use endeavor that includes 1.25 million sq. ft. of retail. Columbus, Ohio-based Continental Real Estate Cos. is developing the project, which is on U.S. Steel's former Homestead Works site.
The Fifth and Forbes retail district downtown is a target of new development as well. The city commissioned Annapolis, Md.-based Hunter Interests Inc. to act as development partner for the revitalization of the area, which includes department stores Kaufmann's, Saks Fifth Avenue, Lazarus and Lord & Taylor. Hunter Interests blames the department stores' lagging sales on an unsupportive mix of complementary retail. The retail storefronts in the district are largely occupied by check cashing services and more than 20 hair and nail salons, giving it a decidedly low-end draw. The city hopes to attract upscale apparel and houseware retailers back to Forbes and Fifth with the redevelopment of 90,000 sq. ft. of retail space, additional parking lots, and office/hotel developments.
Elsewhere, big boxes such as Wal-Mart and discount club Costco continue to expand, Pollock says. Rents in the area generally range between $10 per sq. ft. and $25 per sq. ft., though observers expected no rate increase — and a possible decrease — as Kmart and Ames abandon their stores. At the end of 2001, vacancy rates ranged from 4.5% to more than 8% in the area's eight submarkets, according to CB Richard Ellis.
Delaware: Life is a beach
In Delaware, the smallest market of the three states with a total population of 796,000, steady retail growth continues in two of its three counties — New Castle and Kent in the north and central part of the state, respectively — while southern-most Sussex County is experiencing rapid growth. That's especially true along Delaware 1 highway near Rehoboth Beach and further inland around Lewes, traditionally seasonal communities that are becoming year-round home spots for retirees and empty nesters, says Charlie Rodriguez, president of R&R Commercial Realty in Dover. Retailers such as Wal-Mart, Home Depot, Lowe's and Food Lion have recently opened stores in the area.
Rents in Delaware range from $15 to $28 a sq. ft. in Wilmington, $13 to $16 a sq. ft. in Dover and $15 to $17 a sq. ft. in the Rehoboth Beach area, Rodriguez says.
New Jersey's population at a glance | 2001 estimate: 8,484,431
- Population percent change 1990-2000: 8.6% (U.S. as a whole 13.1%)
- Percentage of White persons: 72.6% (U.S. as a whole 75.1%)
- Percentage of Black persons: 13.6% (U.S. as a whole 12.3%)
- Percentage of Asian persons: 5.7% (U.S. as a whole 3.6%)
- Percentage of Hispanic or Latino persons: 13.3% (U.S. as a whole 12.5%)
- Percentage of persons reporting two or more races: 2.5% (U.S. as a whole 2.4%)
- Home ownership rate 2000: 65.6% (U.S. as a whole 66.2%)
- Households with persons under 18 years: 36.6% (U.S. as a whole 36%)
- Median household income, 1997: $47,903 (U.S. as a whole $37,005)
- Persons per household 2000: 2.68
- Retail sales per capita 1997: $9,922 (U.S. as a whole $9,190)
- Unemployment rate June 2002: 5.6%
Sources: U.S. Census Bureau, U.S. Bureau of Economic Analysis
Pennsylvania's population at a glance | 2001 estismate: 12,287,150
- Population percent change 1990-2000: 3.4% (U.S. as a whole 13.1%)
- Percentage of White persons: 85.4% (U.S. as a whole 75.1%)
- Percentage of Black persons: 10% (U.S. as a whole 12.3%)
- Percentage of Asian persons: 1.8% (U.S. as a whole 3.6%)
- Percentage of Hispanic or Latino persons: 3.2% (U.S. as a whole 12.5%)
- Percentage of persons reporting two or more races: 1.2% (U.S. as a whole 2.4%)
- Home ownership rate 2000: 71.3% (U.S. as a whole 66.2%)
- Households with persons under 18 years: 32.6% (U.S. as a whole 36%)
- Median household income, 1997: $37,267 (U.S. as a whole $37,005)
- Persons per household 2000: 2.48
- Retail sales per capita 1997: $9,150 (U.S. as a whole $9,190)
- Unemployment rate June 2002: 5.3%
Sources: U.S. Census Bureau, U.S. Bureau of Economic Analysis
- Exton, Pa. — Jeffrey M. Brown Associates is constructing an 800,000-sq.-ft., village-style power center on a brownfield site for Wolfson Vericchia Group Inc. The $45 million Main Street at Exton will be anchored by Old Navy, Barnes & Noble, Sam's Club and Wal-Mart.
- Woodcliff Lake, N.J. — Tice's Corner — a $25 million, anchorless lifestyle center — recently opened with tenants Gap, Pottery Barn and Anthropologie. Starwood Heller developed the 120,000-sq.-ft. project.
- Philadelphia — The city recently welcomed its first Target store. The new store is an anchor at The Golden Group's 306,000-sq.-ft. Snyder Plaza.
- Philadelphia — The local office of Insignia/ESG recently brokered the sale of three centers for an aggregate sales price of $22 million. Hudson Advisors sold its 194,000-sq.-ft., Kmart-anchored Pleasantville Shopping Center in Pleasantville, N.J., to United States Realty & Investment Co. Great West Life sold its 182,000-sq.-ft., Acme-anchored Festival at Hamilton in May's Landing, N.J., to AMC-Delancey. And Strategic Resources Corp. sold its 78,000-sq.-ft., Kids R Us-anchored The Mall at One in Philadelphia to institutional investor Advance Investments.
- Old Bridge, N.J. — R.J. Brunelli & Co. Inc. is representing the local franchisee of salon chain haircolorexpress in its expansion into the northern New Jersey counties of Monmouth and Ocean.
- South Plainfield, N.J. — Great Farmers Market is the newest tenant at 1260 Park Ave. Levin Management Corp. brought the specialty grocer in to fill the vacancy left when Acme left its 21,000-sq.-ft. store for a larger, more modern superstore.
- Cinnaminson, N.J. — Purchase, N.Y.-based National Realty & Development Co.'s 339,479-sq.-ft. Cinnaminson Plaza recently opened at 100% occupancy. Anchors at the center include Wal-Mart, Sam's Club and Fashion Bug.
- Plymouth Meeting, Pa. — The area has been the site of a recent game of musical Swedish retailers. Fashion apparel chain H&M recently opened its second Philadelphia store in the area, while home furnishings giant IKEA closed its Plymouth Meeting store in favor of larger digs at a 340,000-sq.-ft. location on Alan Wood Road in Conshohocken.
- Philadelphia — ESPN and The Mills Corp. recently celebrated the grand opening of a 40,000-sq.-ft. X Games Skatepark at Franklin Mills. The park will offer public facilities for skateboarding, bicycle motocross and in-line skating. Last year, Mills and ESPN announced a licensing agreement to build state-of-the-art public skateparks at several Mills centers.
- Bedminster, N.J. — Cushman & Wakefield's Metropolitan Area Financial Services Group brokered the $25.5 million sale of The Village at Bedminster, a 110,000-sq.-ft. neighborood center anchored by Kings. Crow Holdings Real Estate Fund acquired the center from The Tandem Fund, a closed-end pension fund.
Delaware's population at a glance | 2001 estimate: 796,165
- Population percent change 1990-2000: 17.6% (U.S. as a whole 13.1%)
- Percentage of White persons: 74.6% (U.S. as a whole 75.1%)
- Percentage of Black persons: 19.2% (U.S. as a whole 12.3%)
- Percentage of Asian persons: 2.1% (U.S. as a whole 3.6%)
- Percentage of Hispanic or Latino persons: 4.8% (U.S. as a whole 12.5%)
- Percentage of persons reporting two or more races: 1.7% (U.S. as a whole 2.4%)
- Home ownership rate 2000: 72.3% (U.S. as a whole 66.2%)
- Households with persons under 18 years: 35.4% (U.S. as a whole 36%)
- Median household income, 1997: $41,315 (U.S. as a whole $37,005)
- Persons per household 2000: 2.54
- Retail sales per capita 1997: $11,206 (U.S. as a whole $9,190)
- Unemployment rate June 2002: 4.2%
Sources: U.S. Census Bureau, U.S. Bureau of Economic Analysis