Positioning Retail Real Estate for a New Generation

January 9, 2013

2012 Brings Improved Leasing for Retail Real Estate

NJ/NY/PA Area Property Owners Working to Position Properties Competitively

January 9, 2013 - Retail real estate in the New Jersey/New York/Pennsylvania regional market saw improved leasing activity during 2012, distinguished from the recent past by broader expansion involving a larger variety of tenants looking at a wider range of property types. This reflects an important shift from 2010 and 2011, when most retailers remained cautious about growth, and much of the activity that did occur involved opportunistic leasing at quality, well-located properties with recession-borne vacancies.

Today, much of that Class A vacancy has been absorbed, yet leasing momentum continues. Additionally, following a period dominated by growth among value-oriented concepts, 2012 brought stepped-up leasing by restaurants as well as personal services, gyms and other tenants providing non-essential goods and services. This speaks to renewed confidence in consumer spending and continued economic improvement.

In the dining category, activity has picked up within the fast casual sector, especially, with targeted regional growth by Chipotle, Moe's Southwest Grill and Smashburger. New franchises continue to flock to this area as well, as illustrated by a number of leases by frozen yogurt concepts such as Let's Yo and Cups.

Supermarkets remain quite active as well. Large national chains including Stop & Shop and ShopRite, specialized grocers like Fairway Market, smaller formats such as Fresh Market, and specialized local shops geared toward a neighborhood's ethnicity all are expanding regionally.

Apparel, on the other hand, presents a mixed bag. Purely value-driven concepts like TJ Maxx, Marshall's and Ross continue to do well and add locations. Some higher-end retailers, including Chico's, are expanding as sales rebound while others are weeding out underperforming stores. The middle tier still is feeling a pinch in terms of sales volume and ongoing consolidations. For example, Ascena Retail Group bought Charming Shops and is winding down its Fashion Bug operation. Daffy's is liquidating all of its 19 stores. That has put some space back on the market. Most recently, Big M, Inc. - owner of Mandee, Annie Sez and Afaze - filed for Chapter 11, which could further impact the landscape.

Ultimately, the level and scope of new leasing activity in 2012 indicates that retail has again entered a positive trajectory. A high level of renewals across the board - from local retailers to franchises and national chains - reinforces this good news.

Smart landlords recognize that now is an opportune time to retenant, revamp and reposition their shopping centers, with many linking capital improvements to tenant activity. For example, our firm recently completed a renovation at Hamilton Plaza in Hamilton Twp., N.J. The project, which included significant common area upgrades, a new facade, and the addition of two pad sites and a 10,000-square-foot end cap, coincided with a store renovation and expansion by long-time anchor tenant ShopRite. At another Levin-managed center in Whiting, N.J., a new lease by Save-A-Lot has spurred plans for renovation work there as well.

In general, shopping center owners - whether they are institutional, fiduciary or private - are faced with a rapidly changing retail industry and a challenging real estate environment, and recognize that the business is more complex and competitive today than ever before. They understand that the best way to increase the bottom line is to incorporate lean, yet effective, operations, employ carefully crafted leasing strategies, and win top tenants by offering quality shopping environments. Retail real estate services companies that specialize in these specific areas, like Levin Management, are seeing increased demand as a result.

Looking ahead, we expect that the progress retail and retail real estate enjoyed in 2012 will carry forward. Improving consumer sentiment and confidence will further fuel the sector's momentum in the coming year.