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Levin's Matthew Harding: "Retail is a Key Indicator of New Jersey's Economy"
Sector Performed Relatively Well During Economic Downturn, Firm's President Tells Conference
"Retail, especially in Northern New Jersey, has generally done well during the economic downturn, although vacancy rates vary widely by corridor and by tenant mix," said Harding, whose firm is based in North Plainfield, N.J. Major Northern and Central New Jersey corridors show vacancy rates ranging from 5.21 percent to 11.61 percent, with an overall rate of 7.9 percent.
In terms of economic impact in New Jersey, Harding spelled it out by the numbers: 192.7 million square feet of retail GLA; 2,443 retail properties; 368,500 shopping center jobs; $78.1 billion of shopping center retail sales; and $5.5 billion of sales tax revenues.
The economic downturn hasn't been without its impact, of course, and retail bankruptcies are a key element of that. Among those bankruptcies:
"Other retailers are downsizing or ‘right-sizing,' closing stores and becoming more demanding on rental terms," he said. "We expect to see more bankruptcies this year, but not as many as during the depths of the recession, and no major ones."
Uncertainty about some retailers doesn't necessarily mean that shopping centers are any less attractive from an investment standpoint, however. "There is a great deal of money available for ‘ultra core' or institutional-
One factor in the demand for properties from investors: "There is very little new construction, which is also helpful in keeping vacancy rates down," he said. "According to LoopNet, there are 300 retail properties currently for sale in New Jersey - mostly smaller properties."
In terms of cap rates for those properties that do trade, grocery-anchored centers "are six and below, but there is a great range in cap rates and pricing overall," he said. Some examples: A new "power center" in Northern New Jersey anchored by two strong superstore tenants sold for $190 per square foot with a 6.5 percent cap rate; a supermarket-
As far as the retail sector's outlook in New Jersey, Harding characterized the market as a "barbell." He said: "Luxury retail is doing well on one hand, while value pricing is doing well on the other. It's those in the middle that are having trouble." Rents are flat but will continue to stabilize according to Harding, with increases at the quality properties as the gap continues to widen between class A, B and C properties.
"The tax component of rents has really increased over the past few years," he said. "Community tax revenue needs are driving the tax component up and putting pressure on minimum rents."
How have online sales impacted in-store sales? "Online sales comprised seven percent of all retail sales in 2011," Harding said. "It is predicted that number will gradually increase to nine percent over the next five years, although that impacts different retail sectors to varying degrees."
Turning to a post-holiday survey of tenants in five states conducted by Levin earlier this year, Harding saw positive signs. "Asked how they felt their stores would perform in 2012, 65.1 percent were optimistic, 29 percent were unsure, and just 5.8 percent said they were pessimistic,"