Northeast Real Estate Business

NOV-DEC 2015

Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.

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28 • November/December 2015 • Northeast Real Estate Business www.REBusinessOnline.com M A R K E T H I G H L I G H T: N E W J E R S E Y Despite a bump in big-box inventory in the wake of the A&P bankruptcy, the New Jersey retail real estate market continues to gain strength. Leasing ac- tivity remains robust, with strong sub- urban markets augmented by height- ened urban activity. The inventory of properties for sale remains tight, while new development is highlighted by large-scale projects. This year's major headline has been A&P's bankruptcy. The sell-off of the grocer's stores is ongoing, with Stop & Shop and Acme key bidders. Still, the stores remaining unsold are forc- ing landlords to think outside the box and/or redevelop their shopping centers, providing the opportunity to improve tenant mix and increase lease rates. Meanwhile, these immediate op- portunities could slow down nearby projects in the works, including devel- opments that could have come out of the ground in 2016 or 2017. Hot markets include Paramus, a pe- rennial favorite. Also in the north, the redevelopment of Wayne Town Cen- ter has attracted Costco, Nordstrom Rack, Saks Off 5th, Dick's Sporting Goods, and ULTA. In Bridgewater, Whole Foods signed a lease at Bridge- water Crossing, and negotiations are progressing with several major off- price and full-price specialty retailers. In Union County, Clark Commons opened with Whole Foods, LA Fitness, Home Goods, Michaels, Petco, ULTA, Modell's, and Chipotle. Activity in Woodbridge includes a major home furnishing retailer's commitment for the majority of space at the proposed 92,000-square-foot Richmond Plaza on Routes 1 and 35, and the redevelopment of the former American Signature Furniture build- ing for Hobby Lobby. Further south, the redevelopment of Middletown's former Pathmark center will bring in Bed Bath & Beyond and a TJX Compa- nies concept, while Nordstrom Rack just opened at the expanded Eaton- town Crossing, joining Macy's Furni- ture and Fortunoff's Backyard. Statewide, the list of major new projects that are likely to come to frui- tion in the next few years is led by the Meadowlands' American Dream, back on track for a proposed 2017 de- but. Triple Five has announced leases with Cinemax, LegoLand Discovery Center, Sea Life Aquarium, Toys 'R' Us, Hermes, Lululemon and Hudson Bay's Lord & Taylor, Saks Off 5th and Saks Fifth Ave. The Point at Sayreville is a phased mixed-use redevelopment of an indus- trial site, with Bass Pro signed as an anchor. Elsewhere in Middlesex, Hartz Mountain's Edison Town Center will feature Top Golf, which is anticipated to open in late 2016. The company has leases out or in negotiation with sev- eral big-box and restaurant tenants for 2017 openings. In Monmouth County, National Realty & Development has unveiled plans for the mixed-use Mid- dletown Town Center at Route 35 and Cane Road. On the urban front, Jacobs Enter- prises assembled a Bloomfeld site for the mixed-use Glenwood transit village, sold it to Avalon Bay, which developed the property and sold the 60,000-square-foot retail component back to Jacobs. Foodtown will be joined by Tilted Kilt and others at the site. Newark is similarly seeing much- needed new supermarkets, with the recently opened ShopRite to be fol- lowed by Whole Foods, which will an- chor the redevelopment of the former Hahne's department store. Jersey City is seeing retail development along the Hudson waterfront, and neighboring Hoboken has approved a proposed Trader Joe's-anchored development. Besides the aforementioned super- market chains, active tenants include Dollar Tree, which has signed 13 New Jersey deals in 2015, with another four leases out. Others include Wawa, Quick Check, The Fresh Market, We- gmans, AutoZone, Advance Auto, and Planet Fitness. The burger wars continue with Red Robin, Zin Burger, Shake Shack, and Habit Burger, while expanding pizza concepts include Blaze and Anthony's Coal-Fired Pizza. The ongoing strength of the market has had an impact on investment sales. Owners are retaining properties, creat- ing a tight market, with little for sale and cap rates at historic lows. Money is cheap and plentiful, but properties with good credit are supporting rea- sonable rents and returns, to the ongo- ing beneft of current owners. Danielle Brunelli-Albrecht President and Principal, R.J. Brunelli & Co. LLC NEW JERSEY RETAIL MARKET SEES CONTINUED STRENGTH With an increasing number of ten- ants seeking to relocate to New Jer- sey from parts of New York City, including Brooklyn and the Bronx, the Garden State's industrial market is at its healthiest since first-quarter 2008. The amount of vacant space has now reached pre-recession lev- els, decreasing from 7.5 percent to 7.2 percent during the third quarter of 2015. Moreover, the vacancy rate experienced its best year-over-year improvement since the first quarter of 2014. Strong markets include central New Jersey submarkets Exit 8A, Exit 9/Brunswick, and Route 287 West, while the Meadowlands area remains the strongest submarket in northern New Jersey, followed by Exit 14/ Newark near the port, and the Route 46/23/3 submarket. While transactions by large tenants, such as Amazon, dominated activ- ity during the first half of the year, industrial buildings were filled up by smaller and mid-sized tenants during the third quarter of 2015. Retailers/ wholesalers led the way, which is not surprising considering the continu- ally growing e-commerce sector and recent increases in consumer spend- ing. Supporting the recent economic resurgence of the sector, tenants in the manufacturing industry were also very active during the quarter, though many of their leases were small in size. Transportation companies also took space, enhancing the already high level of confidence in the logis- tics industry. Increased interest continues from New York City companies, as some end users there are being priced out of their current markets. In New Jer- sey, logistics are more favorable and occupancy costs are lower. Generally speaking, prospective onlookers from across the Hudson River will begin their search in northern New Jersey near the ports and the Meadowlands, but because of limited options, will continue southward down the New Jersey Turnpike, and go as far as cen- tral New Jersey and as deep as Class C. Because of this high demand, it behooves New Jersey to make trans- portation improvements, not just on roads, tunnels and bridges, but in intermodal-rail infrastructure to sup- port record cargo traffic at the Port of New York and New Jersey. High demand is driving industrial rents through the ceiling, to prices not seen before in some areas. As a result, the average asking rent for warehouse space has reached its highest level since the first quarter of 2009. For the quarter, the rate increased to $5.80 per square foot, up from $5.73 per square foot during the second quarter of 2015. Year-over-year, asking rents have increased in 19 of 25 submar- kets. Demand from New York has contributed to increasing levels. Ten- ants from the boroughs of the Bronx and Brooklyn that are used to pay- ing higher rents are not dismayed by increased asking rents in New Jersey, especially as they look at newer and more efficient space. The same can't be said for current New Jersey ten- ants, which are surprised at the rent increases as they consider renewing their leases. With a slowly improving economy, surging manufacturing center and unprecedented levels of port traffic, the industrial market in New Jersey is expected to remain strong. E-com- merce continues to change develop- ment, as e-tailers need every inch of a warehouse to store product in prepa- ration for timely delivery of online orders. An eye will be kept on the world economy as a global slump could have a major impact on the industrial sector. Another setback could result from the delay of the "Raise the Roadway" project Bayonne Bridge project, as navigational clear- ance is now not expected until late 2017, with additional costs likely. It remains to be seen if this will have an effect on international trade at the port. Matthew Dolly Transwestern's New Jersey Director of Research NEW JERSEY INDUSTRIAL MARKET IMPROVES TO PRE-RECESSION LEVEL Tenants from New York City are used to paying higher rents and are not dismayed by increased asking rents in New Jersey. The same can't be said of New Jersey tenants. Retail owners are retaining properties, creating a tight market, with little for sale and cap rates at historic lows.

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