Southern New Jersey retail leasing continues strong into the third quarter of 2007

The Philadelphia area's Consumer Price Index for July and August spiked .7%, boosted by an increase for women's shoes, dresses and boys clothing, but that jump in prices and problems in the sub-prime financial sector occurring in August has had little impact on the shopping habits of area residents. A diversified regional economy populated by pharmaceutical companies, defense contractors, educational institutions, healthcare providers and logistical service/distribution entities gives the metropolitan area not only stability, but consistent growth that insulates retailers from dramatic fluctuations in year to year sale receipt. Absent a national recession, local merchants, mall operators, retail developers and retail brokers can anticipate an ever-expanding volume of business. Such has been the case in 2007. To be sure, there are vacancies in mid-size and neighborhood shopping centers, but they tend to be fewer than in other major metropolitan areas around the country. Typical rents range from $14 to $16 per s/f in older centers up to as much as two to three times that in the newer lifestyle complexes in the region. Across the Delaware River, retailers, the latest being some of New York's most trendy names in fashion, are paying up to $100 per s/f for storefronts on Walnut St. within walking distance of Rittenhouse Sq., Philadelphia's prestigious center city residential area. The city's hot condominium market has created upscale housing for more downtown residents that in turn has drawn a wide variety of retailers to the pedestrian levels of projects fronting Market and Broad Sts. For developers, acreage suitable for creation of new centers is extremely limited. Those entities are turning their attention to the re-development of older strip centers, converting them into semi-lifestyle locations with new facades and mix of retailers more instep with the demands of today's suburban shopper. When those properties can be found in southern New Jersey or Philadelphia's suburbs, the values are appreciably higher than in previous years, but a bargain when compared to opportunities in central and northern New Jersey or suburban areas in New York. Seeming to confirm that fact is the number of retail property owners and developers from Maryland, New York and New England that were present at the recent regional ICSC Deal Maker Conference held in Philadelphia. Priority interests of those parties were acquiring sites for retail development, existing centers larger than 100,000 s/f and triple net leased centers suitable for investment. Most noteworthy is that many of these parties pro-offered cash transactions without financing contingencies, suggesting a market that is flush with enormous sums of money seeking virtually any type of new retail development, redevelopment or investment opportunity. Given the difficulty of finding buildable land close to Philadelphia, developers have followed population and residential growth as it has moved to more distant areas of Camden, Burlington and Gloucester Counties in New Jersey, as well as Bucks, Montgomery and Chester Counties in Pennsylvania. This ever-widening search has pushed new retail development activity into New Jersey's Salem, Cumberland, Atlantic and Cape May Counties, as it has extended it into Berks, Lehigh and Lancaster Counties in Pennsylvania. In southern New Jersey, liquor licenses now command upwards of $1.7 million in affluent communities with the result that only major chain eateries such as TGIF Fridays, Fuddruckers, Redstone Grill, Outback and similar restaurants can front the capital costs of establishing new locations within a major retail center or on a pad site therein. And those pads which can be listed at half a million dollars or more, are also highly sought by national pharmacies, fast food chains and boutique banks. The recent tightening in financial markets has most impacted mom and pop retailers as well as entrepreneurs wishing to launch a new service or experience within a retail setting. Usually representing high risk and under capitalization, those small merchants now find it extremely difficult to secure the financing needed for fit-out, equipment and initial operations in either a redevelopment center or brand new location. In contrast, national retailers have no problem executing their expansion plans and establishing new sites that are funded internally, or from existing lines of credit from financing relationships that have existed for years. Marc Cutler is a vice president and Rick Gordon is a sales associate at NAI Mertz, Mt. Laurel, N.J.