Leasing Activity in Saugus Offers Glimpse of Larger Retail Trends in Greater Boston Market

by Taylor Williams

By Ben Starr, partner at Atlantic Retail

As the retail real estate industry seeks to understand what may lie ahead in 2023, a study of the wild ride it took in 2022 will likely produce the best clues. 

As early as March of last year, it was clear that 2022 would be a year of activity like none of the prior 15. While headlines through the spring and summer emphasized a run-up in consumer prices and a recession hovering on the back of interest rate hikes, users of retail space intensified their pursuits of new opportunities, unbowed by the looming economic clouds. 

Everyone —  traditional commodity retailers, direct-to-consumer concepts, restaurants, fitness users, medical and other services — was chasing deals. Whether small or large or in primary, secondary or tertiary markets, activity heated up with each new month. 

 Reflecting Larger Trends

With its dense middle-class demographics, close proximity to Boston and high traffic counts, Saugus has historically been in high demand among category killers  as well as high-profile service and restaurant operators. 

Though its local mall, Square One, has struggled as larger, more regional malls rose in upscale neighboring markets, the heavily traveled Route 1 corridor has remained one of greater Boston’s consistently healthy retail markets. For this reason, this submarket provides a surprisingly clear snapshot of the state of retail real estate going into and coming out of the pandemic.

Through 2019 and into 2020, Saugus was experiencing the same pace of tenant turnover that it had during the prior three decades. Kmart departed, and in moved Floor & Décor. Modell’s closed, and Petco, in search of a smaller prototype, relocated a mile north. The iconic Hilltop Steakhouse got redeveloped, attracting Aspen Dental and Starbucks to launch new prototypes alongside some fresh co-tenants, with the former plaza undergoing a façade renovation to begin the hunt for replacements. Rinse, repeat.

In March of 2020, COVID-19 stopped this normal state in its tracks, resulting in the double whammy: amplified departures and a thinner pipeline of replacements. 

The new vacancies came quickly, starting with the closing of the Sears store that anchored Square One. Bed, Bath & Beyond, Men’s Wearhouse, Barnes & Noble and Boston Interiors soon followed suit. Though Planet Fitness and Amazon Fresh quickly jumped to fill the two anchor vacancies at Saugus Plaza, a number of the other spaces sat vacant throughout 2021. 

To those traveling to and from Boston from its northern suburbs, the Route 1 artery appeared to be experiencing some blight, confirming the ubiquitous “retail apocalypse” headlines. 

Leasing Activity Exploded

During the latter half of 2021 and into early 2022, the retail leasing community saw clear signs of a rising tide in Saugus, despite no clear impetus for the rapid uptick. 

Available spaces that would have normally taken nine months to lease now had multiple quality candidates battling at the outset of availability. This rapid-fire action among users of all sizes flipped high vacancy in Saugus to high occupancy rapidly over an 18-month window. 

While fast casual and wellness tenants drove much of the absorption, traditional commodity retailers were busy as well, with relocations within the market also a common occurrence.

At Staples Plaza, Atlantic Retail leased the former Barnes & Noble space to AutoZone and worked with Five Below to double in size, expanding into the former Men’s Wearhouse store. The two remaining tenants, Staples and Chipotle Mexican Grill, each extended their leases as the market heated up. Harbor Freight Tools leased the freestanding former Petco, which had sat vacant for two years. And in a process run by Atlantic Retail’s capital markets team, a new anchor acquired the multi-level Sears and its auto center. 

Among smaller tenants, Raising Cane’s and Five Guys are both knocking down aging vacant buildings and developing new drive-thru restaurants. ConvenientMD leased the 5,500-square-foot endcap space at the Grossman Cos.’ Stop & Shop-anchored center, which was vacated when Verizon relocated to the north.

In addition, PM Pediatrics and Jersey Mike’s leased spaces in the refurbished center that formerly housed Aspen Dental and Starbucks. Not to be outdone in this rush of activity, urgent care operator Health Plus, Cort Furniture and a veterinary user all leased space at the freshly renovated center at 880 Broadway, which formerly housed Party City (a pre-pandemic relocation). 

Although these trends were particularly stark because of the relatively high vacancy rate at the outset of summer 2020, Saugus was in no way an outlier among New England retail markets during 2021 and 2022. 

From West Lebanon, New Hampshire, to Warwick, Rhode Island, and from North Attleboro, Massachusetts, to Manchester, Connecticut, the retail real estate industry throughout New England witnessed high leasing velocity among a broad mix of uses and sizes.

What To Expect in 2023? 

Despite the Federal Reserve’s best efforts during the latter half of 2022 to kneecap the inflated economy, there has yet to be a clear sign of a slowdown in leasing activity. Consequently, retail occupancy rates in metro Boston remain at all-time highs entering 2023. 

Historically, such high occupancy rates have driven rent growth, resulting in high rates of renewal and, at their peak, spurring new development. While the first of the two are certainly underway, rising interest rates, high construction costs and land use restrictions remain high hurdles to the latter. These two opposing forces — high occupancy versus looming economic and bureaucratic obstacles — are likely to have offsetting impacts throughout 2023 such that conditions return to historically consistent levels.

Analysts point to factors such as government stimulus, the shift to remote work and rising inflation as potential explanations for the current state of health among users of retail space. This list suggests that the conditions that drove retail success may shift quickly. 

Easily overlooked, however, is how some of this leasing velocity may be the result of better operations. While fighting for their collective lives during the early stages of the pandemic (and battling staffing shortages ever since), tenants became better at their crafts. Regardless of the category, tenants figured out how to more effectively satisfy the consumer (or patient), resulting in more profitability. 

It remains to be seen if the post-pandemic demand has, in fact, been satisfied with the massive amount of recent absorption. Saugus is a prime example of a submarket in which there might be less activity in 2023 simply due to demand being satiated and available space being in short supply.

In this scenario, only a deep recession would bring on a significant decline in occupancy. It is more likely that occupancy stays strong in 2023 yet levels off from 2022 due to both the lack of empty space as well as higher cost to operate. In this environment, the pace of new small-scale development should continue, although anchored developments will continue to be rare. 

— Atlantic Retail is a brokerage and advisory firm serving tenants in the greater Boston area.

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