NJ still sitting pretty despite furnishing store closures.

With the recently announced demise of the Treasure Island chain putting over 145,000 s/f of space in four highway locations on the market, the vacancy rate in retail properties along northern New Jersey's six major shopping corridors increased slightly to 3.0% during 2005 from 2.8% the previous year, according to R.J. Brunelli & Co., Inc.

Nevertheless, with three of northern New Jersey's roadways registering improvements in their vacancy factors from 2004, the region managed to retain its standing as one of the tightest retail real estate markets in the country.

The Old Bridge, N.J.-based retail real estate company's sixteenth annual study of the northern New Jersey market uncovered 797,333 s/f of vacancies among the 26.51 million square feet of space evaluated along the six highways, with availabilities seen in 95 of the 791 properties studied.

Brunelli's 2004 report on the region found 729,472 s/f of vacancies in the 25.78 million square feet reviewed. Over the last 10 years, the northern market's vacancy rate ranged from a low of 2.0% in 2002 to a high of 5.4% in 1997.

Conducted in January 2006, the firm's 2005 study reviewed shopping centers and freestanding buildings exceeding 2,000 square feet along State Highways 4, 10, 17, 22, 23 and 46, and certain intersecting arteries in Bergen, Essex, Morris, Passaic, Somerset and Union counties. Freestanding restaurants and auto service facilities are also included, while enclosed regional malls and centers under construction or redevelopment are excluded.

"Although the vacancy factor moved up a bit in the wake of Treasure Island's decision to totally close its doors and targeted closings by Levitz Home Furnishings and several other chains, northern New Jersey retained its longstanding position as one of the country's hottest retail real estate markets," observed Richard J. Brunelli, president of the firm.

"With new development opportunities along the six corridors few and far between, availabilities that arise in existing properties offering good visibility and access are typically gobbled up right away by retailers and restaurants desiring to capitalize on the region's high population density and strong incomes. For the most part, large blocks of spaces that linger on the market are in properties with visibility or access issues."

Among this past year's major closings, the Treasure Island bankruptcy will leave three of the northern region's corridors with four vacancies ranging in size from 21,900 s/f to 47,500 s/f, including two locations on Route 17 and one each on Routes 22 and 23.

Levitz Home Furnishings, which previously acquired the Seaman's chain and picked up several desirable former Huffman Koos locations, filed for Chapter 11 Bankruptcy Protection in October 2005 and is now reorganizing under new ownership. Northern New Jersey closures to date include a 53,000-square-foot Seaman's on Route 23 in Wayne and a 20,000 s/f Seaman's Kids on Route 4 in Paramus, but the lease for the 130,000 s/f location on Route 4 in River Edge that Levitz took over from Huffman Koos last year is now also on the block (although the store continues to operate).

The northern New Jersey inventory will get another jolt later this year after OfficeMax completes closures of four locations along the corridors totaling almost 93,000 square feet as part of a plan announced in January to shutter 110 under-performing stores nationwide. The four local highway stores being closed include units on or just off the Route 22 corridor in Union, Watchung and Bridgewater (Route 202/ 206), as well as on Route 10 in East Hanover. Off the corridor, the chain will also be closing a store on Mt. Pleasant Ave. in Dover.

"Given the level of demand for retail space in the region, we anticipate that virtually all of these 'big-box' stores that are already on the market or in the process of being closed will be absorbed over the course of 2006," Mr. Brunelli said.

Results for the individual northern New Jersey roadways are as follows:

Primarily reflecting the availabilities of the 21,900 s/f Treasure Island in Paramus and 47,500 s/f location Ramsey, the vacancy rate along Route 17 increased to 5.1% in 2005 from 3.2% the previous year along the 15-mile section extending from Paramus to Mahwah. The corridor's vacancy factor has ranged from just 1.5% in 2001 to a high of 6.0% in 1996 over the past 10 years.

The firm's 2005 study found 245,700 s/f of availabilities in the 4.80 million square feet of space evaluated, with openings in 23 of the 142 properties reviewed. This compared with 143,500 s/f of vacancies in 4.54 million square feet in the 2004 study.

Other large vacancies arising along the roadway last year included the 25,000-square-foot former K&G Menswear space adjoining Pearl Art Supply in Paramus, 14,000 square feet from the closure of the Nassau Windows store adjoining Petco in Paramus, and 12,000 square feet from the departure of an independent furniture store in a 200,000-square-foot center in Paramus anchored by Burlington Coat Factory. Elsewhere in Paramus, the 10,000-square-foot space vacated in 2004 by Gateway Computers remains available, while 50,000 square feet is still on the market at the 446,800-square-foot Fashion Center.

"The effects of the aforementioned vacancies and scattered small store closings were partially offset by Ikea's successful development of approximately 150,000 square feet of fully leased space adjoining its previously opened store on the former Alexander's site at the junction of Route 4," Mr. Brunelli said.

The new space is occupied by Sports Authority, Bed, Bath & Beyond and the first New Jersey location for Christmas Tree Shops (a New England-based chain that was acquired by Bed, Bath & Beyond).

"With these openings, Ikea has now completed the development of over 525,000 square feet of retail space on the prime 30-acre site it purchased from Vornado in 2004 for a reported $100 million, which may be the highest price paid for raw retail acreage in New Jersey," he added.

Route 4. Vacancies along the three-mile Paramus segment dropped from a 10-year high of 10.6% in 2004 to 4.2% last year, due largely to Levitz's aforementioned takeover of the 130,000 s/f former Huffman-Koos building in River Edge. All told, the 2005 study found 46,033 s/f of vacancies in the corridor's 1.10 million square feet, with openings in six of the 48 properties. Even with the improvement, the current rate is relatively high for a road where the vacancy factor stood at less than 2.0% for five of the last 10 years.

Nearly half of the 2005 study's vacant space emanated from Levitz's closing of the 20,000 s/f Seaman's Kids store in Paramus. Meanwhile, 11,000 s/f of new inventory was added to the roadway at Plaza 35 in Paramus, which was renovated and expanded to 51,000 s/f, with 7,800 s/f still available. New tenants at the property include Loehmann's Shoes and Houlihan's (which replaced the Caruso's restaurant).

The vacancy rate along Route 22, northern New Jersey's most heavily-retailed corridor dropped for the second straight year to 2.7% from 2.8% in 2004.

The highway took its biggest hit with the availability of the 40,000 s/f Treasure Island in North Plainfield, joining the former 47,000 s/f Lord & Taylor Clearance Center, also in North Plainfield, that has remained unclaimed since the 2004 study.

On the other hand, the 36,000 s/f former Sears Hardware in Springfield has been leased, 30,000 s/f of vacancies were filled at Somerset County Shopping Center and 15,000 s/f was absorbed at an adjacent center anchored by Electronic Expo.