Nancy Erickson, Cushman & Wakefield
The central theme of the Northern New Jersey retail market heading toward 2015 can be captured in three words: flight to quality. Strong tenant demand, driven by the region’s diverse inventory of well-located existing and new high-end supply, is translating to tightening vacancies and upward pressure on rents.
As more young professionals choose to live in urban centers and densely populated communities along transit lines, downtown retail, in particular, is benefiting from the momentum. Millennials are starting families and are creating the need for larger living spaces and full-service, family-focused neighborhood amenities. As such, many national and regional concepts that traditionally have targeted regional malls are now entering these markets. Daycare centers, schools, grocery stores and fitness centers also are actively targeting quality downtown locations.
In response, developers and owners are adding new supply and renovating existing properties to accommodate this new generation of tenants in the space-constrained Northern New Jersey region. Mixed-use projects containing retail, residential, office and/or hospitality components in infill locations continue to gain traction.
Along the Hudson Waterfront and downtown, mixed-use projects illustrating this trend include Shuster Development’s project at 360 Ninth Street in the Hamilton Park neighborhood of Jersey City, which will add approximately 29,000 square feet of inventory catering to lifestyle amenities and pre-school/charter school tenants.
Similarly, Advance Realty has launched development for Willow14 on Washington and 14th Street in Hoboken, which will include approximately 20,000 square feet of retail space.
Additionally, LeFrak, one of the most active developers on the Hudson Waterfront, recently broke ground on the remaining vacant land on the Newport Centre waterfront.
Further west in Northern New Jersey’s suburbs, densely populated stops along NYC commuter rail lines are thriving, with several high-profile projects underway. Among them, LCOR is developing Valley & Bloom Montclair, a prominent mixed-use redevelopment that will include 22,000 square feet of street-level retail at the base of high-end residential adjacent to office space and a hotel. And, in Morristown, a project in the planning stage could bring as much as 36,000 square feet of new retail space at 2-12 Washington Street.
These developments all are quite different and are located in four distinct markets — yet they all sit in densely populated, mid- to higher-income neighborhoods with excellent pedestrian and traffic counts. These attributes cater perfectly to an active group of regional and national retailers looking to establish or expand their footprints in New Jersey. Notably, a number of concepts are coming in from other states, including lululemon, Bluemercury, QSR franchises such as Project Pie, BurgerFi, Tom + Chee, Caffebene, and b.good.
The resulting high demand for top-quality retail has driven rents on the waterfront in Jersey City and in Hoboken to the $45- to $100-per-square-foot range. It is quite possible that some street retail coming online will command pricing well north of this. Throughout the rest of Northern New Jersey market, rents are pushing into the mid-$20 range, depending on size, location and quality of real estate.
Rethinking Regional Malls
As an important offshoot of the aforementioned trend of mall tenants expanding into downtown markets, regional mall owners are responding by remodeling and retenanting projects to distinguish themselves from competitors and drive traffic to their projects. Northern New Jersey houses a number of notable examples:
• At Jersey Gardens in Elizabeth, Glimcher Realty Trust recently invested millions to renovate and create a hybrid outlet/traditional tenant mix.
• Vornado Realty Trust created a free-standing outlet component at Bergen Town Center in Paramus and recently brought in a Whole Foods. This has created an interesting mix of grocery and upscale retail.
• In Rockaway, at Rockaway Towne Square, Simon Property Group has brought in several new tenants and refinished the mall interior to achieve an updated look.
A Note on Investment
On a final note, REITs and institutional investors love the Northern New Jersey retail market. At the same time, few properties have traded here in 2014 – because only a handful of well-located, top-tier or grocery–anchored centers have come to market. The most significant acquisition in 2014 involved Federal Realty Trust’s off-market purchase of the Grove at Shrewsbury and its “sister” property, Brook 35. Both are suburban lifestyle centers.
With a blended price of $587 per square foot, Federal paid a 5.5 percent cap rate for the Grove and a 6.0 percent cap for the smaller Brook 35. This trade illustrates the continued decline of cap rates, and demonstrates that demand can support high per-square-foot pricing for infill locations. It also shows that investors are recognizing the resilience of centers dominated by restaurant and service-type tenants in the face of increasing competition between online and bricks-and-mortar retailers.
Looking ahead, retailers will continue to target Northern New Jersey, drawn by the advantages of its dense population, proximity to Manhattan and opportunities being generated by new mixed-use development and shopping center repositionings. Further, demand in downtown markets likely will outpace supply in the near term, resulting in even higher occupancy levels, asking rents and property values.
— Nancy Erickson, Director and New Jersey Retail Lead, Cushman & Wakefield. This article first appeared in the November/December 2014 issue of Northeast Real Estate Business magazine.