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Retailers Set for Musical Storefronts

Bankruptcies, closings create opportunities for new playersMAHWAH

The failures and retrenchments of several medium and large retailers are creating a chance for a new wave of companies to move in or expand in New Jersey’s tight retail-space market.

Mahwah-based retailer Treasure Island, for example, was scheduled to close its remaining stores last week. And office-supply chain OfficeMax, facing withering competition, says it will be closing most of its New Jersey stores this year.

Chuck Lanyard, director of brokerage services for real estate services firm The Goldstein Group in Glen Rock, sees the potential for both new and familiar retail faces to increase their presence in here by jumping on these new vacancies. “It does create opportunities because the New Jersey retail landscape has a limited amount of vacant space,” he says.

He expects the available space to be sought by potential tenants such as Golfsmith, a retailer of golf clubs and accessories; Staples, OfficeMax’s biggest competitor in the stationary game; and TJX Cos., whose retail nameplates include T.J. Maxx, HomeGoods, Marshalls and Bob’s Stores.

“The state, especially for the last decade, has been a real major target area for national retailers because of our strong demographics,” says Lanyard.

Specialty retailer Treasure Island filed for Chapter 11 bankruptcy protection in January with plans to close its 14 stores by the end of March. The company sold outdoor furniture, crafts and Christmas decorations. The family-owned company, whose outlets ranged in size from 20,000 sq. ft. to 47,000 sq. ft., had eight stores in the state, five in New York and a clearance center and warehouses in Mahwah.

Treasure Island generated about $49 million in revenue annually, owed its creditors some $9.6 million and had $9.5 million in assets. Word on the street was the company had difficulty competing against discount retailers such as Wal-Mart and dollar stores.

“Every January we seem to have one or two bankruptcies. It seems to be a tradition,” says Richard J. Brunelli, president of R.J. Brunelli & Co., an Old Bridge-based real estate service firm specializing in leasing retail space. He adds that retailers often wait until after the holiday shopping season to decide on closing their doors.

While Itasca, Ill.-based OfficeMax is still in business, the company in January announced plans to close 10 of its 14 New Jersey stores. That will leave the company with locations in Eatontown, Mount Laurel, Turnersville and Burlington. The closures are part of the retailer’s plan to shut down 110 of its stores, which average around 20,000 sq. ft. apiece, across the country. OfficeMax says it based the closures on performance and growth potential. The presence of some 20 Staples stores in the northern and central New Jersey markets may have also been a factor.

Even though these sites are being vacated by failed stores, Jeff Dash, director of retail leasing for property owner The Lightstone Group in Lakewood, says other retail tenants could find success there. “If an OfficeMax can’t survive, you may find somebody else, probably with a different retail use, can make the numbers because their overhead might be different,” says Dash.

In addition, the stores being closed by Treasure Island and OfficeMax stores fit into the coveted 20,000-to-30,000-sq.-ft. size, according to Lanyard. Brunelli agrees that the new vacancies may be attractive to new tenants.

Says Brunelli: “If you happen to be a retailer that needs 25,000 sq. ft., this year is a bonanza if you are looking to expand. Between the Treasure Island stores and the OfficeMax stores, there is a pretty good cluster of 25,000-sq.-ft. stores out there.”

But the market remains tight, and that means newcomers won’t be snagging fire-sale rents. “In some case vacancies have filled up with higher rent,” says Jeffrey Weiner, president of real estate services firm The Kislak Co. in Woodbridge.

R.J. Brunelli last month reported a modest increase in northern New Jersey vacancies to 3% in 2005 from 2.8% in 2004. The OfficeMax closures—announced after the survey was complete—were not included. The survey of the region found 797,333 sq. ft. of vacancies among 26.5 million sq. ft. of space along state highways 4, 10, 17, 22, 23 and 46.

Meanwhile in central New Jersey, the vacancy rate went down to 3.4% in 2005 from 4.1% in 2004. R.J. Brunelli found 938,823 sq. ft. of vacant space in 27.38 million sq. ft. along state highways 1, 9, 18 and 35.

“The only two highways out of 10 in the regions that had vacancy rates in excess of 5% were Route 17 in Bergen County and Route 18 in Middlesex County,” says Brunelli. “Almost all the other rates were closer to 3%.”

The ongoing restrictions on further development in the state are expected to drive new tenants into vacant space in the most desired markets. “There is very little new retail space being built in New Jersey,” says Brunelli. “We just don’t have too many places to build shopping centers. If you are a landlord, it’s great. If you’re a developer it’s a heartache and if you are a retailer, the rent just keeps going up.”

E-mail to jpruth@njbiz.com

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