A team led by Levin Management Corp. has helped fill big-box vacancies in recent years at North Village Shopping Center in North Brunswick, attracting tenants such as Trader Joe’s and Ulta Beauty to the 123,670-square-foot property on Route 1 in North Brunswick. — Courtesy: Levin Management Corp.
By Tina Traster
Even with the fall of Toys R Us, Sears and other chains — and recent trouble for the likes of Party City and Bed Bath & Beyond — big-box retail is alive and well in New Jersey.
That’s according to landlords and commercial real estate brokers who work across the state’s vibrant trade centers. There is no dispute that many big-name operators and franchises, overextended and challenged by changing consumer habits, have either shuttered or downsized, leaving what would seem like a glut of empty, unfillable, hulking spaces in malls and shopping centers. But those physical voids are handily being filled by retailers such as Burlington, Ross, T.J. Maxx, Alta and others, they report.
And, as many newer or surviving big-box tenants seek smaller spaces, landlords have become more agile and proactive about dividing and marketing their spaces more strategically, attracting tenants in health care, fitness and entertainment.
“Leasing for big-box spaces over the last 18 to 24 months has been as good if not better than it has over the last decade,” said Mike Testa, a retail leasing and investment sales specialist with Jeffery Realty, in North Plainfield. “The perception that there is a lack of an ability to lease boxes is grossly exaggerated.”
Even through the pandemic, Testa said, big-box tenancy remained stable, and vacancies left by apparel or home furnishings, for example, have been gobbled up by grocery retailers like Lidl, Aldi, Grocery Outlet and Amazon Fresh — which are rapidly expanding their footprints in the state.
These tenants are looking for spaces ranging from 20,000 to 50,000 square feet, though retailers like At Home and Floor & Décor still vie for between 70,000 and 100,000 square feet.
“The flow of tenancy remained consistent,” he said. “Excess space is falling to tenants that are expanding, including Ross, which entered the New Jersey market this past year. Anything that’s in an A or B center in New Jersey doesn’t suffer.”
Big-box retail was born more than 60 years ago with the rise of Walmart, Target and Kmart, becoming a descriptor not only for a physical space of 50,000 square feet or more, but for the operators themselves. But e-commerce and other changes in the market have devastated some of the most iconic names in the category, such as Toys R Us and Sports Authority, inducing bankruptcies and store closings at shopping centers nationwide. Two New Jersey-based retailers, Bed Bath & Beyond and Party City, are among the latest chains to shutter stores or face the prospect of doing so. Bed Bath has closed or announced plans to shutter as many as 150 locations in total, while Party City could look to trim its footprint as part of a recent Chapter 11 bankruptcy filing.
Competitive brokers and landlords are now assessing how to use these spaces, and those that remain agile and adaptable are finding an edge. Dividing big boxes sometimes makes sense, they say, but not always. Landlords are calculating whether the investment to divide and outfit spaces, which sometimes involves a steep cost, can be more than recouped down the road through tenancies.
Generally, they believe the market is healthy and demand for premium spaces between 15,000 and 30,000 square feet is rife.
“Over the last three years, we are seeing more division of big-box spaces because anchor tenants are interested in smaller spaces,” said Scott Auster, a senior vice president and head of leasing for Urban Edge Properties.
Two years ago, the company’s Walmart- and BJ’s-anchored shopping center in North Bergen was facing the closure of Staples.
“This was an opportunity to break up a big box because we already had two strong anchor tenants in the center,” Auster said. “The physical attributes worked for a division. We leased to Skechers and Five Below. It was a successful split and it’s performing well.”
Dividing big boxes may convert to a boost for the rent roll, but at what cost?
“It’s not always a home run,” he added. “It depends on the size and age of the building, what needs to be done to accommodate signage, loading. It’s a very sophisticated calculation. Because once you convert the space, it’s unlikely that you’re ever going to have the flexibility to go back to the original size.”
Many boxes are reconfiguring, diversifying or emerging from bankruptcy restructures and they have their sights set on smaller spaces.
“We’re seeing retailers like Burlington and Barnes & Noble looking to downsize,” said Danielle Brunelli, president and principal of Old Bridge-based R. J. Brunelli & Co., noting that the bookseller is scaling down from 35,000 to 20,000 square feet. “Companies like these are figuring out how to keep going. Having a smaller footprint is part of their strategy.”
“The smaller the tenant, the more they can afford,” she continued. Rather than getting $11 per square foot for 30,000 square feet, landlords are signing leases for $15 or $16 per square foot. “Of course there’s the cost to divide, but when the landlord has to refinance the property or sell it, at the end of the day, it’s all about what the asset is worth.”
Brunelli, along with other brokers, said the grocery category is hot with supermarket chains like Lidl, Aldi, Grocery Outlet and Trader Joe’s typically looking for 15,000 to 20,000 square feet — which is often what can be carved out of a bigger space.
The boxes, both intact and converted, are attracting a raft of newer users, especially health clubs like Crunch Fitness, Fitness Factory, Planet Fitness and Orange Theory that don’t need as much space as traditional larger health clubs, but only in recent years have been welcomed by landlords.
Increasingly, freestanding outpatient and ambulatory medical offices are also finding their way to the shopping center.
“We leased a former Toys R Us to Hackensack Meridian Health in Eatontown,” Brunelli said. “Medical buildings want what traditional retailers want — to be in shopping centers that have high visibility, access to highways, convenient parking.”
Matthew Harding, CEO of Levin Management Corp., agrees there has been a winnowing out of big boxes, citing the exit of retailers like Sports Authority and A.C. Moore, and the slowing expansion of users such as Lowe’s Home Improvement and Home Depot.
What’s replacing longtime retailers is a new age of tenants such as trampoline parks, indoor golf ranges with food and beverage and medical facilities.
“The last year or two, there has been strong demand from a wider spectrum of retailers,” said Harding, whose firm is based in North Plainfield. “In the old days, it was toys, sporting goods, home furnishings, office supply. The universe of traditional retailers has become smaller but the urgent care centers, gyms and grocers are allowing shopping centers to reposition themselves. And the last 12 to 24 months, leasing volume and velocity has been encouraging.”
Tina Traster is a freelance writer and the editor of Rockland County Business Journal. She is also a former business writer for Crain’s New York Business, real estate writer for the New York Post and staffer at the Bergen Record.
