February 13, 2013

 February 22, 2013

It’s the end of the mall as we know it

By Richard P. Rizzuto, vice president, Northeast Region, TRANSWESTERN

Malls are synonymous with the Garden State. In fact, New Jersey has the most malls per square mile than any other state and they play a significant role in our economy. Paramus is a well-known, premier shopping destination in Bergen County and boasts five major shopping malls that generate as much as $5 billion in annual retail sales for the town.

Malls are also ubiquitous with New Jersey culture. It’s said that Delaware Township changed its name to Cherry Hill due to the overwhelming success of the Cherry Hill Mall, which opened in 1961 and was the first large indoor shopping center in the East Coast.

They even inspired a movie. Remember “Mallrats,” which was written and directed by New Jersey’s own Kevin Smith? The 1995 film tells the story of the misadventures of two suburban New Jersey slackers who head to the mall in search of solace after being dumped by their girlfriends. Since the birth of the mall, brands have aspired to gain entry to their doors. Having representation in The Mall at Short Hills, The Mall of Americas, The Beverly Center, and others was an essential ingredient to being considered a respected and successful brand.

This, however, is not necessarily the case anymore. Despite their past popularity, it appears that malls are losing some of their status as “the” place to go when searching for shoes, shirts, solace, a good time, or a quick bite to eat. They are slowly, but surely going out of style. It is likely that in five years there will be no more malls as you, I or the cast of “Mallrats” remember. Lifestyle retail centers, or as the International Council of Shopping Centers (ICSC) defines them, “upscale national chain specialty stores with dining and entertainment in an outdoor setting,” are encroaching on the traditional mall concept and becoming the preferred destination for many brands looking to escape the bland and boring confines of traditional brick-and-mortar malls. They have also become a favored selection for shoppers. These centers have become so popular that the ICSC has outlined specific parameters to be qualified as one, including: Being located near an affluent residential neighborhood; Featuring an upscale orientation; Possessing between 150,000 to 500,000 square feet; An open-air concept; At least 50,000 square feet of national specialty chain stores. Since 2008, the number of lifestyle centers measuring between 150,000 and 500,000 s/f has gradually grown. From 2008 to 2011, the number increased from 391 to 418 across the United States, according to the ICSC’s 2011 Economic Impact of Shopping Centers report. For example, The Shoppes at Union Hill, a 92,000 s/f lifestyle center in Denville, N.J., recently opened, between two enclosed malls on a highway carrying more than 40,000 cars per day. Tenants include Pier 1 Imports, Bombay Co., Gap and Gap Body, Talbots, and Jos. A. Bank Clothiers, as well as Starbucks and Panera Bread. The center’s store managers report customers commenting that they are glad to have an

alternative to the malls for their shopping, according to Certified Commercial Investment Member (CCIM). Why are lifestyle centers becoming the preferred destination for retailers looking to grow their revenue? One key reason is that lifestyle retail centers provide similar visibility to mall locations, but at a fraction of the cost: $25 -$60 per square foot versus $60 – $80 or more per square foot for indoor mall retail space. Why pay $60, $80, $100 or more per square foot in indoor mall rents when retail sales are still unstable and rent is now more than just a line item? Beyond the more cost-effective square footage, lifestyle centers’ shoppers are more frequent patrons and typically more affluent than the everyday mall customer, according to the ICSC: • The average retail expenditure per visit was $75.70 at lifestyle centers versus $73.30 at the malls. • The average number of stores shoppers entered was 2.9 at lifestyle centers versus 2.3 at conventional malls. • Lifestyle shoppers made 3.8 visits to their centers in a 30-day period, while mall shoppers paid 3.4 visits to their centers in the same period. Many “mid-level” brands have also decided that lifestyle centers and freestanding buildings were/are the future because it simply makes sense. Think about it. Pay much less in rent, avoid common-area maintenance fees and have a more customizable location without traditional mall politics. It is a win-win for the likes of Crate & Barrel, its CB2 concept, L.L. Bean and others. Of course traditional malls will always be needed, but it is likely the trend may quickly become “malls are a place to advertise – not necessarily to sell.” Given the economy, in the next phase of the “mall evolution,” brands will need to understand there is a new majority of people that enjoy going to malls to see that hottest new trends and looks…but then going to an outlet store or online to find the same “look for less.” As time goes on, more mid-level brands are going to jump on the same bandwagon and the majority of malls left standing will be filled with nothing but

luxury brands, while lifestyle centers and freestanding buildings open up a lower-cost/higher-profit margin model and raise to the top of real estate directors’ lists.

 March 18, 2013

Lower-end tenants claiming prime N.J.

locations amid market shift Value-based chains draw interest from shoppers preparing for pay tax hike

Retailers are not the only ones paying attention to trends in how consumers spend their money — the real estate industry is watching closely, as well. Matthew Harding, president of Levin Management, said the company's retailers have yet to see the decrease in spending because of the payroll tax hike, but that doesn't mean changes in spending habits haven't affected the properties.

Harding said many of the properties the company manages did major leasing activity in the past year with value retailers. In early March, Levin signed a lease with Dollar Tree for a 13,800-square-foot store in a Ewing shopping plaza, one of several contracts with the chain in the state. “If you look at it, from Dollar Tree to DD's to TJX to Home Goods, it really spans a pretty wide variety of demographics,” Harding said. “We see that from across the spectrum.” There's a good reason for retail property owners to be focused on value-based chains — according to the National Retail Foundation's monthly consumer survey, nearly 23 percent of shoppers indicated in February they will be focusing on shopping at value stores more often. This shift in the industry is also causing new names to pop up in unexpected locations.

“There are more Dollar Generals opening than there are Louis Vuitton stores,” said Rick Rizzuto, vice president of the commercial real estate firm Transwestern, in Parsippany. “The trend is going to be, what was considered at one point low-end retailers are going to be the new norm of acceptable quality retail.” Properties that would have been impossible to get into 10 years ago are now opening up, and are even being sold by long-time owners, according to Rizzuto. “We're seeing a lot of quality retail on the market for purchase. For example, up and down the Route 10 corridor, there were probably 10 years where if you wanted to buy something, it was impossible, unless you wanted to pay four or five times what it was worth,” he said. “Now, things are becoming available, prime corners and whatnot, in the heart of Route 10 in East Hanover and Whippany.” Rizzuto said these prime properties most likely are going to be snapped up by retailers that are less affected by consumer sentiment: gas stations and pharmacies, which “can support what's happening in the economy, because they're needed,” he said. Both Rizzuto and Harding said bigger spaces are being adjusted for smaller-sized tenants, and that grocers are still active in the New Jersey market. “There aren't going to be any 30- to 40,000-square-foot users, aside from select gyms and certain grocery stores,” Rizzuto said.

 March 18, 2013