Retail real estate took a beating this year.
The hits started in January when Walmart revealed plans to close more than 150 locations throughout the country. Sears joined the brawl in April when the department store chain announced it would close 78 Kmart and Sears stores.
The bankruptcy of Sports Authority dealt another blow. The sporting goods chain shuttered all of its more than 460 stores this summer.
Then retail giant Macy's made public it would close 100 locations by early next year. More department store closures are expected in the coming months.
The result is a commercial real estate landscape that experts say could be unlike any we've seen before — and that could have major long-term ramifications for local communities.
"Certainly having large-scale retailers close is nothing new," said Neil Stern, senior partner with the retail consulting firm McMillan Doolittle in Chicago. "The difference this time around is that there are not new retailers necessarily waiting in the wings to scoop them up."
Pressure from online shopping and changing consumer habits have pushed retailers to downsize — or completely eliminate — their physical footprints, dampening the interest in a 40,000-square-foot or larger store like those left vacant by Sports Authority. Expansion in terms of brick-and-mortar stores, meanwhile, is being largely driven by just two sectors: off-price retail and dollar stores.
The curtailed demand by retailers for square footage — and the increasing number of store closures — has forced landlords saddled with large vacancies in shopping centers and malls to seek out new types of tenants to fill those massive, empty spaces. Go-kart tracks have replaced sporting good chains and indoor sports facilities have replaced department stores. Medical facilities and health clubs are also taking over spaces once dedicated to retail.
Does that mean New Jersey will have a totally altered commercial landscape in the years to come? Is our era of endless shopping plazas lining our highways nearing an end? Maybe not entirely.
While Stern said that landlords will have to become "increasingly creative in finding tenants" on a national level, local commercial real estate professionals said big box retailers still consider the Garden State a worthwhile investment. There are examples in New Jersey of retail properties converted to new uses, including a former Kmart in Paramus now outfitted with turf fields for rent.
But the state's wealth and population density still lure traditional retailers, experts said.
"Thank goodness New Jersey has the strong demographics that we do," said Chuck Lanyard, president of The Goldstein Group, a Paramus-based retail brokerage firm. "The big box tenants are still looking in New Jersey."
Still, the retail vacancy rate increased to 7.2 percent in July, up from 6.2 percent a year ago, according to a report from The Goldstein Group that was released on Monday. (The report tracks more than 4,250 properties on retail corridors in central and northern New Jersey. It doesn't track vacancies at enclosed malls.)
Responding to this uptick in vacancy, Lanyard said: "We see this change to be short lived, minimal, and we expect considerable improvement in the coming year."
Of the more than 460 Sports Authority locations that shuttered across the country this summer, 21 were in New Jersey, including a 50,000-square-foot store in Paramus at the intersection of routes 4 and 17, a prime retail location. North Plainfield-based Levin Management has been hired to find a new tenant for that property.
Joseph Lowry, Levin Management's senior vice president of leasing and acquisitions, said "there's been really strong interest in that space from a lot of different types of users," including traditional retailers and entertainment-oriented tenants.
"There aren't too many markets like Paramus," said Lowry, who expects to to have a tenant selected for that store in the next 30 days.
Another likelihood is that many of the largest big box spaces will persist, but in newly segmented form.
R.J. Brunelli & Co. in Old Bridge is working on leasing a nearly 44,000-square-foot property on Route 9 in Manalapan once occupied by Sports Authority. Ron DeLuca, the chief executive officer of the retail real estate firm, said some of the former Sports Authority stores may be carved into smaller spaces in order to attract tenants, though he said there are tenants interested in the entire space in Manalapan.
And while local experts expressed optimism about filling vacant commercial spaces in prime locations in New Jersey, they also acknowledged that many landlords of retail properties are trying to decide where and how they can make changes that will help adapt the properties to an evolving marketplace.
Joshua Weinkranz, the president of the northeast region at Kimco Realty, a New Hyde Park, N.Y.-based company that owns and operates open-air shopping centers throughout the state and country, said online shopping has forced many landlords to change the way they market their shopping centers and diversify their offerings to include a mixture of retail, residential and office spaces.
"That really is the way things are shifting now," he said. "The mixed-use projects are where people want to be, not only the retailers but the consumers and the people who live there."
Although Weinkranz said his company doesn't have any projects underway now that involve adding a residential component to shopping centers in the northern half of the state, which he oversees, he said there are several new mixed-use projects in the state that they are considering.
One major redevelopment effort already in the works in New Jersey, however, may provide a glimpse of what the future holds for malls and shopping centers throughout the state. Despite local opposition, Eatontown approved a zoning change in September that allows Kushner Companies to move forward with a plan to convert the Monmouth Mall into an open-air hub that offers retail, dining, entertainment and residential.
"It's no secret that traditional-style malls are struggling across the country, so we're really focused on delivering a fresh, modern project that will meet the needs of area residents for years to come," Jared Kushner said in a statement announcing the project in February.
Whether landlords decide to try to lease a large vacancy as is, carve it up into smaller pieces or redevelop the properties entirely, all of them are working toward the same goal: getting empty space filled as quickly as possible.
As the property manager for the Middlesex Mall in South Plainfield — which is currently dividing up a former 81,000-square-foot Macy's store into two to attract new tenants — put it: "Any vacancy is not a good thing."
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