New England's real estate market remains tight. But thanks to good economic times in the six-state region, national players are forging ahead and finding success.
During the past several years, the retail landscape in New England has been altered by significant bankruptcies and consolidations. Since Caldor Corp., Home Quarters, and Service Merchandise closed their doors, opportunities have opened up for new players eager to expand in the region. Successful newcomers such as Wal-Mart, Target, Kohl's, and Best Buy have picked up much of the space left on the market.
For instance, in the greater Hartford, Conn., area closings and consolidations accounted for 1.2 million sq. ft., or 22% of the area's overall vacancy, according to a fall 1999 report by Finard & Co. of Burlington, Mass. The closing of eight Caldor stores accounted for most of the newly vacant space, or 16.4% of the total. The report notes that Ames and Wal-Mart have acquired most of those former Caldor sites.
Big-box development heats up Big-box retailers including Lowes Home Improvement and The Home Depot dominate much of the new construction in the region. In part, The Home Depot is expanding in New England in order to remain competitive with Lowes, according to Bruce Kaufman, a partner in Finard & Co. "What The Home Depot is doing is making sure that it doesn't get outmaneuvered by Lowes."
The Home Depot now places its stores as close together as is economically feasible for each unit, notes Kaufman. As a result of such aggressive strategies, investors are confident that strong big-box retailers will continue to do well in New England. Wal-Mart, The Home Depot and Target stores are easily financed, notes Todd Stressenger, a senior director in the Boston office of Holliday Fenoglio Fowler LP, a national real estate banking firm based in Dallas. He adds that junior anchor-sized retailers with credit such as TJ Maxx, Marshalls, Staples and CVS - along with grocery-anchored strip centers - are the most desirable to the lending community.
Zoning challenges "The big-box and specialty retailers are hot," confirms Michael Antkies, president of Michael Antkies Real Estate, tenant and landlord representatives based in Danbury, Conn. Danbury may soon be getting its first Target if the town gives the go ahead. "We've identified a site for Target and they do want to be here," adds Antkies. "There are a lot of retailers that still need to come to the area. For example, Wal-Mart is not here yet. The hard part is creating the retail environment for them. All the good zoned land is gone, and you have to get it rezoned."
One of the toughest places to build in the region is in Vermont, says Daniel Zelson, principal and owner of Charter Realty & Development Corp., Greenwich, Conn. Consequently, Hannaford used a little foresight to help bring the first Lowes to South Burlington. Zelson explains that after three years, Hannaford finally got the approvals in place to make a deal with Lowes.
Hannaford had started the approval process before even knowing whether Lowes was interested, which probably saved another three years, adds Zelson. Construction is expected to begin by the end of the summer.
"It's always more challenging for tenants to come to the New England market and expand," says Tom DeSimone, executive vice president and COO of Chestnut Hill, Mass.-based S.R. Weiner and Associates Inc. "Nonetheless, Target is in a real expansion mode," DeSimone explains. "They opened their first round of stores last fall and I think they were very encouraged by the success that they experienced."
Meanwhile, Target has gained a foothold in the region, but retailers like Best Buy are just starting to establish a large presence in New England, notes Zelson. Also, in addition to taking Caldor sites, Wisconsin-based Kohl's recently signed several new leases in the Connecticut cities of Groton, Enfield, and Lisbon.
"The outlook for some retailers is good if they fit a specific niche in that marketplace," observes Jim Lee, senior vice president of development for Indianapolis-based Simon Property Group. Lee says that the competition between Circuit City and Best Buy will continue, while Kohl's will be acquiring a number of good locations made available as the result of bankruptcies. "But many new retailers are not going to find a lot of new exciting projects going up. Consequently, they are going to have to look at back-filling areas where existing properties have already made an impact on the marketplace."
Zelson echoes the view that it's a tough marketplace. As a result, he says, "what's happening across the region is that anything that exists that isn't up-to-date has real potential to be redone to make money for the developer, and for the tenant."
Simon's strategy It's difficult to get retail projects approved in New England, agrees John Anderson, Konover & Associates, Farmington, Conn. "You have to keep your nose to the grindstone and keep pushing forward."
Simon took a different path in its effort to expand its presence in New England. The company opted to acquire a portfolio of 14 regional malls from New England Development Co. last year for more than $1.7 billion. "It was the best way that we could find to get into this marketplace with a substantial footing," explains Lee.
"New England is a thriving marketplace led by technology," he adds. "Virtually every retailer of national consequence wants to look at New England. But entitlement issues are so difficult that people have to look at existing properties in order to figure out how to make an impact there."
In southeastern Massachusetts, the redevelopment of older retail centers and the new construction of community centers is at an all-time high, reports NAI's 2000 Real Estate Planning Guide. For example, Hanover Mall and South Shore Plaza have already been renovated. In addition, a major renovation is planned for Westgate Mall in Brockton and a major redevelopment is being slated by the Mills Corp. on the site of the former Weymouth Naval Air Station. Construction plans include a 1.5 million sq. ft. mall in addition to an office, industrial and senior housing component, according to the report.
Keene, N.H., is another market where opportunities for retailers exist, but the development process there can be painfully slow, according to Anderson. For example, Konover & Associates has been working on a 450,000 sq. ft. center in Keene for more than 15 years. "Keene is a city that draws from a large geographical area. And the stores that are there do extremely well," says Anderson. The problem lies in getting projects approved and opened. "It's a difficult environment but once you get it done it's worthwhile."
A changing focus "The pendulum is swinging toward the preservation of space," explains Brad Hutensky, president and principal of The Hutensky Group, Hartford, Conn. "Communities across the country are starting to think of the character of their community as an asset that must be protected. The trend today is more toward renovating, refurbishing and in some case demolishing and rebuilding an existing center."
Zelson believes the resurgence of New England's downtowns is "fueling the fight to keep some of these big boxes out of their communities." Communities in Vermont, for example, have passed legislation that makes shopping center development extremely time-consuming.
Overall, building restraints along with substantially reduced vacancies make New England a competitive and challenging marketplace in which to find quality space, notes Robert Rechner, director of leasing for the New England region, Heritage Realty Management Inc., Boston. "This year what we've seen is a very healthy absorption of the available space by larger box users," says Rechner. "There are still some opportunities available but they are much fewer and farther between on the larger store availabilities."
An analysis of the southern New Hampshire market by Finard & Co. indicates that retail vacancies are the lowest in the region. The total inventory of vacant retail space was 1.6 million sq. ft., or 6.6%. "The southern New Hampshire vacancy was less than our most recent reported vacancy rates for both eastern Massachusetts, which was 7%, and Greater Hartford at 13.4%," says William Beckeman, a partner at Finard & Co.
In Augusta, Maine, S.R. Weiner and Associates has been able to bring a range of merchants into a formerly untapped market, notes DeSimone. The firm is completing a 400,000 sq. ft. addition to The Marketplace at Augusta, a 365,000 sq. ft. center. "You're going to continue to see some consolidation among retailers," he adds. "We'll continue to see Target, The Home Depot, Wal-Mart, Staples and The Gap expand aggressively."
Rechner concludes that, "Retailers are doing well and expanding; I see that continuing through the foreseeable future."