By Taylor Williams
The retail markets throughout the greater New York City area have been starving for more quality space in the post-pandemic era, with ground-up supply gains rarely hitting the market outside of obligatory inclusions within apartment buildings and highly curated clusters at mixed-use developments.
According to JLL’s latest market report on New York City, as of the first quarter of 2025, there were approximately 200 availabilities across Manhattan’s “prime” retail submarkets — a record low. Average asking rents leapt 7.4 percent between the fourth quarter of 2024 and the ensuing period, settling at a rate of $577 per square foot. The report identified traditionally ritzy retail corridors and hotspots such as Fifth Avenue, Madison Avenue, SoHo and Times Square as recipients of the “prime” label, also designating the Williamsburg district in Brooklyn as one such area.
So when well-located spaces formerly occupied by retailers that are now defunct or aggressively downsizing become available, they tend to draw major, immediate interest.
“Expanding retailers have substantial opportunities to backfill big box and junior spaces vacated by bankrupt chains,” says Mitzi Flexer, managing director in the New York City office of national brokerage firm Bradford Allen.
Flexer says that a notable example of this pattern involved Atlanta-based home improvement retailer Floor & Decor transforming a former Bed Bath & Beyond store at 850 Third Ave. in Brooklyn’s Sunset Park area into a 129,000-square-foot flagship store, its first in New York City.
“Similarly, New York-Presbyterian Hospital has leased the former T.J. Maxx building at 502 86th St. in Bay Ridge, repurposing the space for medical services,” she adds.
With spaces in Manhattan and Brooklyn limited and commanding top-tier rents, it follows that numerous operators would target suburban — for lack of a better term — areas on the periphery of Manhattan or Brooklyn, almost inevitably landing them in New Jersey or on Long Island. And since everybody wants a piece of the country’s biggest, most dense market, similar supply-demand dynamics are taking root in those areas.
“Even in a market where retailers are more price-sensitive, well-located real estate within prime and densely populated areas continues to experience substantial demand,” says Randy Briskin, vice president of leasing at The Feil Organization, a New York City-based owner-operator. “Landlords overseeing larger commercial spaces with more significant leasing complexities should adopt a flexible approach, giving due consideration to the potential for subdividing the premises.”
The Feil Organization recently transformed a vacant Long Island Kmart by leasing the least-desirable third of the building as government offices, incorporating a 30,000-square-foot pickleball facility and dividing the remaining area into smaller retail units. This subdivision of the property resulted in a significant augmentation of the net operating income when compared to the preceding Kmart lease agreement, Briskin says.
That deal highlights the level of tenant demand on Long Island, which other sources agree is on fire and shows little sign of cooling.
“Long Island has nearly 3 million people, and we don’t have nearly enough retail space in our major markets,” says Justin Breslin, vice president of owner-operator Breslin Realty Development Corp. “So we’re seeing major pushes from national grocers, as well as both national and discount fitness concepts, to get into spaces that have been vacated by junior box tenants.”
One such deal that Breslin is particularly excited about involves the conversion of a former Babies ‘R’ Us store at Sayville Plaza in Bohemia into an Uncle Giuseppe’s Marketplace. That project, which is expected to be complete this summer, represents a more extreme end of the spectrum in terms of the challenges of backfilling and repurposing space (more on that later).
And those are just examples of big boxes whose previous occupants cracked the mainstream news cycle. Long Island is dotted with smaller, high-quality retail spaces that are being eyed by competent operators who just need to figure out how to rightsize their formats for the spaces in question.
“We recently backfilled a former Boston Market restaurant space with Wild Fork, a South American company that sells frozen meat products,” Breslin says. “That deal is a great example of a group coming out of the woodwork and taking advantage of great retail spaces in which they can maximize their use.”
In fact, the retail supply-demand imbalance on Long Island, a notoriously wealthy enclave that checks all the site-selection boxes, is so pronounced that Breslin says office-to-retail conversion plays may soon make sense for this market. After all, location is really all that some older suburban office buildings have left to offer.
Matthew Harding, CEO of New Jersey-based Levin Management Corp., sees similar patterns playing out in Northern New Jersey.
“The supply of new construction remains limited and constrained by costs, plus here we have regional constraints of limited land, time and costs involved with approvals,” he says. “So you definitely have to work with tenants to meet their needs and prototypes, then be creative about how you find space to get the good uses in.”
“Over the last few years, bankruptcies have usually — not always — represented opportunities for retail landlords,” Harding continues. “Bed, Bath & Beyond stores have mostly been filled in this market; Modell’s put space back on the market before that. So that supply that comes to market is [a means of] achieving growth for retailers that are expanding and also giving landlords opportunities to put tenants into spaces that will bring more customers to the property.”
Harding also says that grocers and fitness users are among the categories of retailers that are most aggressively pursuing those vacancies in Northern New Jersey. Most recently, Levin celebrated the grand opening of a new, 72,000-square-foot ShopRite grocery store at Blue Star Shopping Center in Watchung, New Jersey. ShopRite had been a major tenant at the 420,000-square-foot center for decades, but the new store is about 30,000 square feet larger. According to Harding, the new store was made possible by “assembling vacated space over time and demolishing a section of the center so the grocer could build anew.”
At Blue Star Shopping Center in Watchung, New Jersey, Levin Management Corp. recently celebrated the opening of a new, expanded ShopRite grocery store. The deal was made possible through creative reconfiguring of existing space, a trend that is proving to be increasingly paramount to balancing retail supply and demand throughout the region.
Incidentally, Planet Fitness also committed to Blue Star Shopping Center a few months ago via a 21,850-square-foot lease to backfill a space formerly occupied by arts and crafts retailer Michaels. In addition, Planet Fitness took 15,500 square feet at Middlesex Corner, another Levin-managed center in North Plainfield, New Jersey, backfilling about half of a store that was previously occupied by ACME Supermarket.
All sources interviewed for this story also continue to see creative deals being executed within former drugstore spaces in their markets. That trend predates this story, but the more entrenched it becomes, the more varied and random the base of backfilling tenants seems to be.
“Vacant drugstore spaces, such as former Rite Aid or Duane Reade locations, are increasingly being re-tenanted by national grocers seeking smaller neighborhood footprints, as well as urgent care centers and medical facilities that value the existing infrastructure,” says Flexer. “These spaces often offer favorable ground-floor layouts, ample parking and sufficient electrical capacity, making them attractive for such conversions.”
Flexer cites Whole Foods’ opening of its smaller-format “Daily Shop” concept in a former Rite Aid store on Manhattan’s Upper East Side as a great example of this trend in action. Barnes & Noble is another example of a rather unconventional user that sees potential in former drugstores, which according to an August 2024 study by The New York Times account for roughly a million square feet of empty space across the city.
Sources say that in some cases, however, those spaces are not re-tenanted quickly because their sizes make them “tweeners” — too big for some categories like quick-service restaurants but too small for junior box merchandisers. In addition, as the Times story notes, the combination of vandalism and vagrancy within unsecured drugstore spaces has been a blight on New York City’s retail market in recent years.
“Drugstores are a bit of an enigma at the moment,” says Briskin. “A landlord would typically encounter little difficulty in securing a new tenant. However, a primary challenge associated with many former drugstore sites is their history as build-to-suit properties. In these arrangements, the landlord often provided the entire capital investment for customized construction tailored to the specific needs of the pharmacy. This resulted in comparatively elevated rental rates.”
“Consequently, when seeking to re-lease these premises to cost-sensitive tenants, such as discount retailers, the achievable rental income is likely to be significantly lower than the previous drugstore’s expenditure,” he explains further. “Therefore, while tenant demand for these spaces may exist, the financial returns for the landlord could be considerably less than those generated by the former drugstore tenant.”
Making It Happen
Like most real estate plays that involve converting, redeveloping or repurposing existing product, achieving the desired end result without breaking the bank is much easier said than done.
This is particularly true when it comes to backfilling a soft goods/merchandising space with a food-and-beverage concept. The bare-minimum logistical and infrastructural requirements of such projects are enough to make any owner cringe, but that’s where the demand is.
“There’s a large infrastructure change below the ground that needs to occur when you go from selling bedding or kitchen appliances to food,” says Breslin. “Septic capacities have to be expanded; a lot more water lines have to be installed, and bathroom capacities must be increased. And that’s before you get to the specific build-outs that most grocers have.”
Local leaders and gatekeepers don’t always help the cause either. Breslin says that some Long Island municipalities demand the opportunity to undertake major site plan reviews before granting permits and approvals for these projects.
In New Jersey, Harding notes that lengthy waiting times for these documents and certificates are par for the course. But even so, elongated timelines serve to make complex projects even hairier, given that tenant build-out and basic construction costs are high and getting higher.
“Lease terms have become more specific with regard to delivery deadlines, and with some retailers, there’s a requirement for a turnkey build-out, which can be fairly complicated,” Harding explains. “That really makes it tougher for a landlord without the capital or experience to deliver. And in our market, there are long time frames for municipal approvals or building permits on top of rising costs of materials and construction, so it all adds up to a pretty complicated dance.”
Sources say that ironically, doing these deals for national tenants as opposed to mom-and-pop users can actually be more stressful and complex. This is because national credit tenants tend to have highly specific, stringent store designs and timelines for openings, not to mention deep-pocketed investors with high expectations and a strong dislike of disruption or unexpected changes.
Opportunities Forthcoming?
Earlier this year, retail advisory firm CoreSight Research released a report stating that 2024 was the worst year for retail closures since the onset of the pandemic in 2020.Store closures in 2024 totaled roughly 7,300 that year, a 57 percent increase over 2023, although U.S. operators also opened 5,970 new retail stores or restaurants in 2024, yielding a net loss of 1,355. In addition, CoreSight found that based on its research, the number of individual U.S. store closures could exceed 15,000 in 2025 and could be offset by about 5,800 openings.
In addition, CoStar Group recently released research on multi-tenant properties that found that “retail tenants had vacated nearly 7 million more square feet of shopping center space than they occupied during the first quarter.”
Party City, Big Lots, The Container Store, Walgreens and Kohl’s are among the national brands that have already announced major closures or are rumored to be exploring downsizing options and/or bankruptcy proceedings. The shuttering of these tenants’ stores represents a different type of opportunity from the bankruptcy of a Forever21 or typical mall tenant. Moreover, they represent a source of opportunity for expanding operators or new, original concepts whose growth has been stymied more by lack of space at the local level than inflation, tariffs or decimated consumer confidence at the national level.
Walgreens, specifically, has announced plans to close several hundred stores in 2025 as part of a multi-year downsizing initiative, while Rite-Aid is also rumored to be on the verge of another bankruptcy filing, according to an April report from The Wall Street Journal. Harding says that he expects these and other vacated drugstore spaces in New Jersey to be re-tenanted in a timely manner, even with high costs of build-outs delaying lease negotiations and actual construction.
The reason? There is simply too much demand and too many novel, exciting concepts out there that want to be in these markets.
“It’s an exciting time to be repurposing, renovating and re-tenanting existing properties as we see different cycles of retailers coming and going, as well as changes in demographics or infrastructure,” he concludes. “There are just so many interesting types of tenants out there.”
— This article originally appeared in the May 2025 issue of Northeast Real Estate Business magazine.