We assembled a panel of industry experts to tackle our recent roundtable question.
Here’s what they had to say.
Marta Person Villa, senior vice president, JLL (East Rutherford)
Retail is being affected by the contraction of department stores and large general merchandise retailers such as Kmart, along with the apparel sector. This is creating opportunities to reposition assets that were previously tied up with long-term leaseholds.
Additionally, in the case of old department stores like Sears or Kmart, the rents were presumably very low and, therefore, owners now have the opportunity to generate more rent on these assets. The challenge is in the complexity of these properties and the effort of dividing them into multitenant projects — it’s not easy.
The market for retail in New Jersey remains active. It was a busy summer and early fall, and we saw the same sectors on the expansion trail: food, medical, fitness, discount retailers, gas/convenience and grocery. Food has a positive impact on the entire retail industry. Given the frequent creation of new food concepts, there always seem to be opportunities to fill space or roll out a series of stores.
Jason Pierson, president, Pierson Commercial (Marlboro)
The New Jersey retail market is experiencing increased competition within the supermarket and fast casual sectors. Supermarkets such as Wegmans, Whole Foods and ShopRite are offering high-quality, specialty on-premises food offerings with appealing indoor and outdoor seating venues. Traditional single-product core competency operators are also expanding their food offerings to stay competitive and grow revenue through additional channels. Furthermore, brick-and-mortar retailers are expanding their delivery options with same-day (often within hours) services. We believe service providers, such as Instacart, will be an integral part of the growing omnichannel experience within New Jersey. It is important to note that New Jersey is a very desirable market due to our high population, income and sales performance levels, in addition to our high barriers to entry. The state remains very active on the retail front; however, innovation, operational performance and customer service will be the prevailing factors for success.
Lee Holtzman, partner, McCarter & English LLP (Newark)
Property tax appeals will benefit, the retail subsector, as owners of retail property, whose assets have lost value due to the proliferation of e-commerce and other reasons, can obtain relief. 1) The overall number of tax appeals filed this year in New Jersey declined from the previous few years, but anecdotally, we saw an increase in appeals in retail, and we expect that trend line to continue and even sharpen. Owners of retail space continue to see their tenants demanding rent reductions or prematurely vacating leased premises. 2) Largely to bolster their municipalities’ finances, tax assessors tend to be slow to lower assessments in struggling subsectors, making those asset classes ripe for appeal. 3) As the decline in retail continues, office space is soft, and we’re carefully watching multifamily housing, where valuations remain strong but where rent concessions and stagnation could be the first signs of an oversaturated market and more appeals.
