Retail Traffic

New England Retail Confronts Change

Developers in the six-state region are rallying in the wake of a battery of consolidations and store closings.

Due to both positive and negative factors, the retail landscape in New England is changing rapidly. On the upside, demographic changes have lured a new stream of retailers to the New England states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. However, population growth in the six-state region lags far behind the national average, and ongoing retail consolidations and store closures continue to sap the region.

"New England is not a growing market; it is a changing market," says Robert Rechner, leasing director of the New England region for Boston-based Net Properties.

"If you want to coin a term for the current state of retail in New England, it would be 'transitory times,'" says James Koury, vice president of Boston-based Spaulding & Slye.

Development activity The market is stable, yet not a lot of new construction is under way. According to Rechner, "We will continue to see focus on redevelopment rather than new construction. We will see more expansion and redevelopment of existing retail sites."

The most significant new development in New England is outlet malls, says Bruce Kaufman, managing director for Finard & Co., Burlington, Mass. "A significant retail trend this year has been the number of new outlet centers that have been either built or planned for New England. The outlet mall is a trend coming to this area. You are not seeing more regional or enclosed mall construction."

Three outlet malls are planned for the region. In addition, there are already existing outlet malls in Worcester, Mass.; Kittery, Maine; North Conway, N.H.; and Essex, Vt.

A changing retail landscape Adrienne Davis-Brody, senior vice president of marketing for Newton, Mass.-based WellsPark Group, says consolidations, store closings and lifestyle changes of the baby boomer generation and others are opening windows of opportunity for a new breed of retailers in the region.

"We have clearly seen the marketplace come alive in the past 12 months," Davis-Brody says. "Retail is changing because our lifestyle is changing. You now find much greater emphasis on home and family goods than you have ever seen before. People are shopping more and more on weekends and less during the night and during the week."

She says retail business also is becoming more and more competitive in New England, and only the strongest are likely to survive. The region today awaits the uncertain futures of two major lease-holders.

"The single biggest question in New England today is what is going to happen with Bradlees and Caldor," Koury says. The two regional retail giants, which operate approxi- mately 80 stores in the region, show no signs of coming out of bankruptcy any time soon.

Many retail analysts, in fact, have started writing their obituaries, saying Bradlees and Caldor may not survive the increasing competition from rival Wal-Mart and the impending entry of Target. A division of Minneapolis-based Dayton Hudson Corp., Target is planning to open more than two dozen stores in New England. Approximately 12 will be located in eastern Massachusetts, retail brokers say.

A number of retailers are closing stores across New England this year. Lechmere is closing 18 units, dumping more than 1.2 million sq. ft. of space on the market. Nobody Beats The Wiz, a Carteret, N.J.-based electronics retailer, abruptly reversed its decision to expand in New England and closed its three Massachusetts stores and two others in Connecticut in July. F.W. Woolworth also is closing 31 stores in New England.

According to a study by Finard & Co., occupancy in strip centers in New England hovers around 92 percent. Occupancy in regional malls is approximately 94 percent, while the average vacancy rate in New England's enclosed malls stood at 7.4 percent at the end of June.

New entrees The good news is that several retailers want to grow in New England. The most active retail segment in the area is the mid- and big boxes, ranging from 25,000 sq. ft. to 35,000 sq. ft. in size, Rechner says.

One of the most interesting trends in New England is the hunt for space by big-box retailers such as Best Buy and Circuit City in regional malls. "This trend is just starting," says John Phelan, executive vice president of leasing for WellsPark Group, Newton, Mass. "There are several reason for this. First, there is a lot of street-level space available in regional malls; and second, there is a lack of alternative space for them in their traditional marketplace."

Nordstrom, which broke into the New England market this year with the opening of a store in Farmington, Conn., will open another store next year in Providence, R.I. According to Phelan, other newcomers to the region include Sears Home Life; Casual Corner, which is looking for space to open large stores; and Britches, which has opened at least four stores in New England.

Big-box athletic footwear retailers also are entering the market. Edison, N.J.- based Sneaker Stadium has opened two stores in New England in Newington, Conn., and Natick, Mass.

"We are seeing a very strong tenant demand pretty much in all categories. This is the first time in five years," says Phelan. He says most tenant demand in regional malls is coming from children and teenage-oriented retailers such as Learningsmith and Hot Topic.

The demand for space is not having much of an impact on values of regional malls and shopping centers, says Koury of Spaulding & Slye. The values of retail properties in the region have maintained an average of $75 per sq. ft. to $80 per sq. ft. during the past 12 to 18 months, he says. Increasing vacancy rates have been pushing prices down, while decreasing cost of debt has boosted prices up, helping maintain balance.

"Inexpensive debt has been the single biggest factor in maintaining shopping center values in a weak retail environment," Koury says. "There is an opportunity in retail real estate in New England to purchase upside properties."

Koury says transitory times have created great opportunities for developers, investors and real estate investment trusts to purchase opportunistic real estate in a market that is otherwise heated in office and multifamily sectors. "The transitory environment with retail tenants allows some arbitrage opportunities as some investors have been discarding the lush, risky properties in the area. You may get a better return in New England," he notes.

Boston dominates state Kaufman says, despite the fallout of some major retailers in the area, the retail environment in the Boston area remains quite healthy. With a population of more than 4 million people, the Boston area is the fifth largest metropolitan area in the country and boasts one of the most diversified economies.

According to Finard & Co., retail vacancies in eastern Massachusetts have edged up slightly, from 7.1 percent last year to 8.3 percent this year, as a result of recent consolidations in the industry. Kaufman predicts that spaces vacated by Lechmere, F.W. Woolworth and other stores will be absorbed by other tenants.

A.C. Moore, an expanding regional craft retailer, recently opened a store in Natick, Mass., and is planning to open several more locations. CompUSA now has six stores in the Boston area and is looking for more sites.

Kaufman says existing retailers such as Home Depot and Barnes & Noble remain in an expansion mode, planning new stores in eastern Massachusetts. Also, area supermarkets such as Stop & Shop and Shaw's are continuing to expand, while drugstores such as CVS, Osco Drugs and Walgreens remain very active, seeking freestanding locations in the marketplace.

"We are dependent on a very diverse and healthy economy in Boston. Retail is booming here. You cannot find good [undeveloped] retail sites. You have to either redevelop or clean existing sites," says Michael Lynch, vice president and retail services director in the Boston office of Northbrook, Ill.-based Grubb & Ellis. "With a lack of suitable land sites and with Lechmere and F.W. Woolworth closing down, a lot of other retailers are looking to get these positions that otherwise would not have been available."

He says well-located land sites are fetching $1 million per acre within the Route 128 area of Boston. "Since not much retail development is taking place -- or sporadic at most -- rents are going up by 5 percent annually in Boston area," Lynch adds.

The Maine choice Gregory Boulos, a principal at The Boulos Co., Portland, Maine, says that, as the Boston market tightens, big-box retailers are discovering Maine. "First they stop in Boston and then in Portland and then Bangor," he says. "They want to be as close to the Maine Mall as possible, but retail sites are very difficult to come by. As a result, some of these big-box retailers are looking in areas around Portland."

Portland's retail occupancy is about 98 percent, and rental rates and land prices are rising, Boulos says. Occupancy may go down temporarily, however, with the closings of Lechmere and Woolworth stores.

"There is not a lot of turnover in the marketplace here. Circuit City has been looking for sites here for the last two to three years," Boulos says. "There are other big-box retailers who have not been able to find a site yet. It's a pretty healthy market."

Charles Craig, a principal for Portland-based Dunham Group, says big discount stores in Maine have been feeling tremendous pressure from Wal-Mart, which has opened 21 stores in the state during the last four years. According to Craig, three Kmart stores, two Bradlees stores and three Rich's stores (the Salem, Mass.-based discounter) have been closed as a result of the increased competition.

"Some of the vacated stores are being occupied by Wal-Mart and Ames stores," Craig says. "And we are continuing to have growing interest from other category killer, big-box concept retailers as well." Home Depot, OfficeMax, Circuit City and Sports Authority all opened at least one store each in the Portland area within the last 12 months.

Economic comeback Rhode Island, one of three New England states hit hard by the huge cuts in the defense industry during the early 1990s, is enjoying economic recovery. "Rhode Island is finally seeing a turnaround in the economy, and that is good news for area retailers," says Allen Smith, vice president in the Providence, R.I., office of Chicago-based Urban Retail Properties.

"Consumers are feeling more confident about the economy today and therefore are willing to spend more money," Smith says. "A lot of people are spending on non-essential items as well as on purchases of big-ticket items."

Nordstrom and Lord & Taylor will make their Rhode Island debuts at Providence Mall, which is scheduled to open next fall. In addition, "Some of the Target stores that are planned in New England will also open in Rhode Island," says Smith.

Connecticut also suffered defense industry cuts, but the economy is on the upswing there as well. "There were high-paying jobs in the defense industry that were difficult to transfer to the private sector. It took a number of years to bounce back," Smith says.

The Hartford area remains Connecticut's population center. More than 23.4 percent of the state's population lives in the area. With a 5.2 percent unemployment rate -- still one of the highest in New England -- the Connecticut retail market is coming back strongly.

There is 39.2 sq. ft. of retail space per capita in the region, compared with 35.1 sq. ft. of retail space per capita in eastern Massachusetts. A study by Finard & Co. put the Hartford area retail vacancy rate at 8.3 percent.

Retailers continue to enter the market. Nordstrom opened its first New England store in Farmington, Conn., earlier this year, and Wal-Mart is opening more stores in the state.

Vermont and New Hampshire Wal-Mart remains a growth company throughout northern New England, and other big boxes are expanding into the region. "There is strong retail interest in New Hampshire and Vermont," says Rechner.

After years of opposition, Wal-Mart opened two stores in Vermont earlier this year -- one in Rutland and another in Williston. "It is my understanding that they are continuing to pursue at least one more store in Vermont," Rechner says. "We have also seen an interest by T.J. Maxx and Staples in Vermont."

Construction also has begun on a 111,400 sq. ft. Sears department store at University Mall in South Burlington, Vt. The Sears addition is the third expansion of University Mall since its opening in 1979.

"We also have seen an increased interest in New Hampshire, especially in Concord and Lebanon markets," Rechner says. Local brokers say that, although occupancy rates and rents are rising in New Hampshire, a few weak spots remain. For example, North Hampton Marketplace, a 170,000 sq. ft. retail center in North Hampton, has been unable to compete with outlet malls in nearby Kittery and Freeport, Maine.

A promising future Retail in eastern Massachusetts and Maine has surpassed that of other New England states, but, for the past 12 months, the entire region has been healthy, says Rechner. "Rents have increased, and the New England economy is promising to remain very stable," he advises.

With stabilized retail real estate values, a growing economy, and high consumer confidence levels, New England is set to survive the current wave of retail consolidations and closings. The six-state region promises to provide new opportunities to a new breed of retailers that are willing to adapt to the area's needs.

Upendra Mishra is a Boston-based freelance writer.

Connecticut * West Hartford, Conn.-based Konover & Associates Inc. is building three shopping centers. Lowe's Shopping Center (175,658 sq. ft.) in Newington will include Lowe's Home Center, Outback Steakhouse and Ruby Tuesday when it opens next fall. Home Depot Plaza (165,000 sq. ft.) in Torrington will feature Home Depot when it is completed in fall 1999. Anchors have not been announced for Countryside Plaza (90,000 sq. ft.) in Meriden, which is expected to open in spring 1999.

The company also has three redevelopment projects under way. Farmington Valley Mall (272,374 sq. ft.) community center in Sansbury will be converted into a power center in July. Next fall, Enfield Commons (265,365 sq. ft.) in Enfield will be renovated. The project currently features Bradlees, Hoyt's Cinema, RX Place and Three D Bed & Bath. Norwichtown Mall (240,464 sq. ft.) in Norwich was recently renovated and expanded. Both the interior and exterior of the community center were refaced, and anchor Super Stop & Shop was expanded.

* Chicago-based General Growth Properties Inc. has opened Brass Mill Mall and Brass Mill Commons in Waterbury. Brass Mill Mall is a 1.1 million sq. ft., enclosed regional shopping mall located on an 87-acre tract that is the former home of Scovill Brass Works, the largest brass manufacturer in the United States for more than 200 years.

Sears, Filene's and JCPenney anchor the mall, which includes 330,000 sq. ft. of small shop space. Barnes & Noble, Toys "R" Us, Kids "R" Us and OfficeMax anchor Brass Mill Commons, the 200,000 sq. ft. community center located adjacent to the mall.

* In October, Purchase, N.Y.-based National Realty & Development Corp. renovated Hawley Lane Mall in Trumbull. The upper level of the 214,000 sq. ft. shopping center was redeveloped to accommodate a 54,000 sq. ft. Steinbach department store. The center also is anchored by Waldbaum's and Caldor.

* Rochester, N.Y.-based Wilmorite Inc. has repositioned Danbury Fair Mall in Danbury. Last year, the 1.3 million sq. ft. regional mall added retailers such as Abercrombie & Fitch, Aldo, Brookstone, Enzo Angiolini, J. Crew, The Museum Company, Nine West and Papyrus. In addition, Laura Ashley and Noah's of Copley Place were relocated to larger spaces. Anchored by Macy's, Lord & Taylor, Filene's, Sears and JCPenney, Danbury Fair Mall is managed by Rochester-based Genesee Management Inc.

* Norwalk, Conn.-based Field Brothers is expanding and renovating Marshalls Shopping Plaza in Wethersfield. The 84,000 sq. ft. shopping center will grow 13,905 sq. ft. with the addition of Walgreens. A new facade, parking lot, signage and lighting also will be added by spring 1998. The project, which is managed by Wethersfield-based New England Retail Leasing Co., is anchored by Casual Curtain, PC Warehouse, Big & Tall, and Marshalls.

* Westport, Conn.-based Starwood Ceruzzi Waterbury L.L.C. is building Waterbury Crossing in Waterbury. When it is completed in March 1998, the power center will total 231,000 sq. ft. and will be anchored by Home Depot, Sports Authority and PetsMart.

* Taubman Centers Inc., Bloomfield Hills, Mich., has expanded Westfarms, a 1.3 million sq. ft. superregional center in Farmington. The center's GLA grew 135,000 sq. ft. in September with the addition of new tenant space and a Nordstrom department store.

* In April, Los Angeles-based Westfield America Inc. expanded Enfield Square in Enfield. The 580,300 sq. ft. regional mall grew to 678,822 sq. ft. with the addition of Sears. The mall also is anchored by Filene's and JCPenney.

Maine * Kravco Co., King of Prussia, Pa., recently completed an interior renovation of Bangor Mall in Bangor. The second phase of the mall's redevelopment program -- the construction of a 120,000 sq. ft. Filene's department store and 40,000 sq. ft. of specialty store space -- began in October and is slated to open in November 1998.

* West Hartford, Conn.-based Konover & Associates Inc. is constructing an unnamed shopping center in Auburn. Anchors have not yet been announced for the community center, which will total 90,000 sq. ft. when it is completed in fall 1999.

* Chestnut Hill, Mass.-based S.R. Weiner & Associates is building The Marketplace at Augusta in Augusta. The project will total 400,000 sq. ft. when it is completed by the end of next year.

Massachusetts * Quincy, Mass.-based Stop & Shop Cos. Inc. is building Allston Marketplace in Allston. The 105,000 sq. ft. neighborhood center will feature Super Stop & Shop when it is completed next spring. Waltham, Mass.-based Atlantic Retail Properties will be the center's leasing agent.

* Build-out continues on Sumner Street Marketplace in Norwood. Owned by Newton Lower Falls, Mass.-based National Development of New England, the project will total 200,000 sq. ft. and will be anchored by Home Depot and Super Stop & Shop. The center's leasing agent will be Waltham, Mass.-based Atlantic Retail Properties when it is completed next summer.

* Jericho, N.Y.-based Rosen Associates Management Corp. has re-opened Watertown Mall in Watertown. The 250,000 sq. ft. mall was updated with new granite flooring, skylights, entries, signage and land- scaping. It also has been retenanted with retailers such as Omni Supermarkets, Super Gap Outlet, Old Country Buffet, Registry of Motor Vehicles and Strawberries Records & Tapes.

* Boston-based Net Realty Holding Trust has begun expanding Watertower Plaza in Leominster. The 241,000 sq. ft. community shopping center, which is anchored by Caldor, Shaw's and T.J. Maxx, will grow 45,000 sq. ft. with the addition of Barnes & Noble and 23,500 sq. ft. of retail space. The project will be managed by Boston-based Net Properties Management Inc. when it is completed next summer.

* Chestnut Hill, Mass.-based S.R. Weiner & Associates is constructing two projects in Massachusetts. An as-yet-unnamed shopping center in Davers/Peabody will total 150,000 sq. ft. when it opens next June. The Center at Hobbs Brook in Sturbridge will total 300,000 sq. ft. when it is completed in 1999.

* Norton Shores, Mich.-based Horizon Group Inc. has opened Berkshire Outlet Village in Lee. The 224,000 sq. ft. outlet center features Levi's Outlet, The Gap Outlet, Anne Klein, Bass, Calvin Klein Outlet Store and Jones New York Country.

* Chestnut Hills, Mass.-based WS Development Associates L.L.C. is building Charles River Center in Bellingham. The 200,000 sq. ft. specialty center will feature a 14-screen Hoyt's Theater complex and Linens 'N Things when it opens next spring.

New Hampshire * In Keene, West Hartford, Conn.-based Konover & Associates Inc. is planning Monadnock Plaza, which is expected to total 250,000 sq. ft. when it opens in fall 1999. Anchors have not yet been announced for the project.

* Construction began in November for phase III of Settlers' Green Outlet Village Plus, located in the heart of the White Mountains in North Conway. A development of Boston-based O.V.P. Realty Trust, the newly renovated and expanded 154,000 sq. ft. outlet center will grow to 242,000 sq. ft. The project is anchored by J. Crew Factory Store, Banana Republic Outlet, Nine West Outlet, Brookstone Outlet, Seiko Company Store and Orvis Factory Store.

* This month, Newton, Mass.-based R.K. Associates is completing renovation of R.K. Plaza (150,000 sq. ft.) in Hooksett. The common area of the community shopping center was improved, and new pylon and store front signage, a new parking lot, landscaping and facade were added. In addition, anchor Kmart was renovated to the new Big K format.

Rhode Island * The Grossman Cos. Inc., Quincy, Mass., is renovating Kingstown Plaza in North Kingstown. The $500,000 project includes the addition of three towers, new awnings, an illuminated pylon and backlit tenant signage, landscaping, and a new color scheme and logo. The 87,500 sq. ft. shopping center will resemble a New England village when it is completed this month. The project is anchored by T.J. Maxx, NHD, Brooks Drug and Strawberries Records & Tapes.

* Warwick, R.I.-based Wickford Junction Associates L.L.C. is building Wickford Junction in North Kingstown. The 300,000 sq. ft., mixed-use center will feature retail and office components as well as a commuter rail station. The colonial design elements will include landscaped walks, benches, sculpture and a 250-seat pavilion. The project will be anchored by Wal-Mart.

* Newton, Mass.-based R.K. Associates will de-mall and redevelop R.K. Newport Festival Shoppes in Newport to create a 200,000 sq. ft. strip center. No tenants have been announced for the project, which is expected to be completed next November.

* Chestnut Hill, Mass.-based S.R. Weiner & Associates is planning an as-yet-unnamed shopping center in Smithfield. The project will total 600,000 sq. ft. when build-out is completed in 1999.

* Next fall, Sears will join the anchor roster at University Mall in South Burlington, according to Burlington, Mass.-based Finard & Co., the center's manager. The 111,400 sq. ft., two-level department store will join JCPenney, Ames and Steinback at the 491,000 sq. ft., regional mall.

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