Tuesday, April 24, 2012

Eastern MA KeyPoint Report Preview

The KeyPoint Report on retail real estate in Eastern Massachusetts/Greater Boston will be available soon at KeyPointPartners.com. Below are highlights from the findings in this year’s report:

Market Overview & Vacancy:
With new retail construction limited, total inventory in Eastern Massachusetts stands at 189.4 million s/f, a modest increase of 0.1% from the prior study period. At the same time, the vacancy rate in the region showed a modest net decline from 9.0% to 8.9%, equating to a reduction in unoccupied space of only 200,000 s/f. It would have been a much better year for net absorption had it not been for the demise of Borders and Syms/Filene’s Basement, which helped to bump up the vacancy rate from a low of 8.7% earlier in the year.

As a result of limited retail development in Eastern Massachusetts and only a nominal reduction in vacant space, net positive absorption in the region was held to a mere 270,600 s/f.

Among the 10 submarkets in Eastern MA, Buzzard’s Bay carries over from last year with the highest vacancy rate at 11.1%, unchanged from a year ago. As they did last year, high vacancy rates in New Bedford and Fall River negatively skew the submarket. Unoccupied space in these two cities represents one-half of the all the retail vacancy in Buzzard’s Bay. Although the City of Boston vacancy rate of 9.0% in slightly above the region average, this submarket showed the largest decline from last year, falling from 10.5% and shedding approximately 259,000 s/f of empty space. Another submarket showing improvement is the Inner Suburbs, declining from 8.8% to 7.4%. Part of this decline occurred through “addition by subtraction” in the form of building demolition, most notably the vacant 117,100 s/f National Wholesale Liquidator store, which was razed as part of the Northgate Shopping Center redevelopment in Revere. The lowest vacancy rate in the region again occurred in the North Shore where the vacancy rate remained 7.3%.

Cities & Towns:
City and town rankings, with respect to total retail square footage, remain the same for the third consecutive year. Boston, Cambridge, and Brockton again hold the top three spots, followed by areas with a regional retail focus such as Natick, Burlington, Peabody, and Saugus. With respect to vacancy, Westborough jumped into the top spot this year with a 21.8% vacancy rate, dramatically higher than the year-ago figure of 13.9%. Much of the vacancy increase resulted from the opening of Northborough Crossing, which includes a number of relocated tenants from the abutting town of Westborough, including BJ’s, TJMaxx, Dress Barn, and likely resulted in other retailers closing, unable to withstand the competitive impact.The lowest vacancy rate in the region was recorded by Abington at 1.8%, holding the number one position for three consecutive years.

Expansion/Contraction by Store Size:
Small tenant vacancy remains troublesome in 2012. The vacancy rate in tenant categories 0-2,499 s/f and 2,500-4,999 square feet inched up this year to 13.9% and 12.0%, respectively. These are the two highest rates among the eight size ranges. Failure of mom and pops is largely contributable. Vacancy among tenants between 5,000 and 9,999 s/f is 11.5%, also well above the region average but at least on a downward trend from the 12.4% level reported last year. The remaining categories above 10,000 s/f are in relatively good shape with all significantly below the region average, with the exception of the 25,000-49,999 square foot range, which stands at 9.1%. However, this segment of retail space has trended down considerably from the levels of 10.4% in 2010 and 9.8% in 2011 as vacancies left behind by defunct retailers such as Circuit City, Linens ‘n Things, Borders, Filene’s Basement and AJ Wright are absorbed.

It was another quiet year for developers, with only one major development coming online. The September 2011 opening of Northborough Crossing, the 650,000 s/f (retail) mixed-use project in Northborough, marked the entry of Wegmans Food Market into Eastern Massachusetts. Other big box players located there include BJ’s, Kohl’s, Toys R Us, TJ Maxx, Golf Town, Michael’s, and PetSmart. The only other center to open with more than 100,000 s/f was the 201,100 s/f RK Swansea Place anchored by Target and a relocated Marshalls. A small outparcel strip at Swansea Place opened in 2009.

The full report contains much more detailed information on these categories and more, as well as additional data new to this year’s report. Stay tuned!

Bob Sheehan, Vice President of Research

The KeyPoint Report examining the retail real estate marketplace for Eastern Massachusetts/Greater Boston focuses on the 12-month period beginning April 1, 2011 and ending March 31, 2012. The report examines supply, vacancy and absorption, retailer activity, and market composition by store size and retail categories. The studied market includes 189 cities and towns representing more than 3,500 square miles (44% of Massachusetts' land area) and nearly 5 million people (app. 76% of the state population).

Company News

New Employees: Maryann Atherton joined the Burlington, MA Office as an Accounts Payable Data Entry Clerk. Maryann had been a part of the Retail Database Research team. Christopher Scharff joined the Burlington, MA Office as a Property Operations Assistant. Chris came to KPP from WJP Development, LLC.…New Business: Michael Branton and Dave Hough will handle leasing for Fairlawn Plaza, an 87,500 s/f Price Chopper-anchored shopping center at 380 Maple Avenue in Shrewsbury, MA.

Industry News: National

US chain store comp retail sales for March rose by 4.1% year-over-year as measured by the ICSC's tally of 22 major retail chains. An early Easter and continued warm weather were contributing factors. Among merchandise categories, Apparel led with an 8.4% gain, followed by Luxury Stores with a rise of 8.1% and Discount Stores with a rise of 8.0%. Wholesale Clubs were up 6.0%, Department Stores gained 5.9%, and Drug Stores dropped by 4.4%. Among individual retailers, Gap gained 8.0%, and Limited rose 8.0%; Costco was up 6.0%. Nordstrom was up 8.6% and Saks gained 6.3%; Target grew by 7.3% and TJX by 10.0%. Macy’s gained 7.3%, and Kohls rose by 3.6%; Rite Aid was up 3.6%, and Walgreens fell 6.8%. See list of retail sales results below.

Industry News: Accelerating

DSW will open 35 to 40 new stores in 2012…GoldMax USA, which specializes in buying gold and precious metals from consumers, plans to open up to 100 new US stores in 2012, adding to its current 200+ store total…Francesca's Collections expects to open 76 new boutiques during fiscal year 2013…Urban Outfitters plans to open 55 to 60 new stores in fiscal 2013, with 13 of those slated to open in the first quarter…Barnes & Noble Inc. plans to expand its 200 s/f. Penguin store-in-stores from its current 10 units to 25. The boutiques sell Penguin book titles and merchandise…Neiman Marcus Group opened its 42nd store, an 85,870 s/f full-line department store in Walnut Creek, CA…Aeropostale plans to open 18 Aeropostale stores, 30 P.S. from Aeropostale stores, remodel 5 stores, and close 10 Aeropostale stores in fiscal 2012…Ann Inc. plans to open 65 new stores in fiscal 2012, which will be partially offset by downsizes at Ann Taylor stores and about 30 store closures…Smashburger opened its 9th New Jersey location, the 150th location for the brand nationwide…J. Crew Group plans 16 J. Crew retail stores, 10 factory stores, one crewcuts store, and 15 Madewell stores in fiscal 2012…QuikTrip opened its 600th convenience store, about 39 months after opening store No. 500. The company now has stores in 9 markets throughout the southern US and Midwest, most recently opening new stores in the Carolinas. The chain owns all 600 stores under its banner….After opening 625 stores in 2011, Dollar General plans to open another 625 units in 2012, which will include 40 of its Dollar General Market stores and 80 new market debuts. About 550 stores are slated for remodel or relocation…YO!Sushi, a fast, casual concept that serves Japanese-inspired dishes, has closed its first agreement with a Washington, DC-based franchisee for 10 restaurants throughout Washington and Philadelphia, the first of which will open this summer. YO!Sushi hopes to open up to 400 US locations...Culver's plans to add 25 to 30 units this year. The chain, known for its ButterBurger and frozen custard, currently has 449 restaurants in 19 states, and aims to hit 500 units by 2013…Charming Charlie announced the opening of 60 retail locations in 2012. Since launching in 2004, Charming Charlie has grown to 182 stores in 33 states…Michaels has filed with the Securities and Exchange Commission for the proposed initial public offering of its common stock. Michaels plans to open 45 to 50 stores in 2012…Family Dollar opened 184 stores during the first half of fiscal 2012, closed 36 stores, and renovated, relocated or expanded 342 stores. The chain anticipates opening 450-500 stores for the full fiscal year...Saks Fifth Avenue Off 5th will anchor two new centers in development: Phoenix Premium Outlets and St. Louis Premium Outlets. There are 34 Saks Fifth Avenue Off 5th locations in shopping centers in the Simon Premium Outlets and Mills divisions…High-end London men’s retailer Alfred Dunhill will open its second US store on the Vegas strip this summer. It plans to open at least 3 more over the next 12 months...Eastern Mountain Sports plans to open 3 stores in the next 3 months in Manchester, CT, South Portland, ME, and North Brunswick, NJ…Hobby Lobby Stores opened its 500th store, a 66,500 s/f facility in Las Vegas...Ruby Tuesday Inc. has agreed to acquire the Lime Fresh Mexican Grill chain for $24 million, but Ruby Tuesday will close up to 27 underperforming locations of its namesake brand in coming months. Lime Fresh has a total of 15 locations, and plans to add another 20 next year with 30 more planned for 2014. Ruby Tuesday Inc. operated 740 locations at the end of the quarter, while franchisees operated another 85 US restaurants…Bed Bath & Beyond Inc. anticipates opening a total of 40 stores across all concepts this fiscal year...Uniqlo will open its first West Coast store, a 29,000 s/f space in San Francisco, this fall. The company has opened 3 US stores in New York City…Sbarro will open 10 test units in June which will showcase new initiatives such as reformulated pizzas and made-to-order pasta dishes. Sbarro currently has 1,025 units.

Industry News: Decelerating

As of May 19 CVS/pharmacy will close all 25 of its Beauty 360 locations…Sears Holdings Corp. will close 53 specialty stores in the first half of 2012, including 43 Sears hometown dealer stores and 10 Sears Hardware stores...Best Buy plans to close 50 US big-box stores by 2013. Best Buy currently has 1,105 US big-box stores. The company plans to open 100 "mobile small format stand-alone stores" in fiscal year 2013…Charming Shoppes plans to close 90 to 105 underperforming stores this year. The chain plans to open 20 stores (12 at Lane Bryant and 8 in its outlet channel) relocate 25 mall locations to lifestyle and power centers, and renovate 40 stores. Of the stores to be shuttered, 35-40 are Fashion Bug stores, including 19 stores closed in February, and 35 to 40 are under the Catherines banner. Lane Bryant plans to close 20-25 stores. In the next several years, Charming Shoppes plans 125 new locations and 125 relocations...JCPenney laid off 600 workers from its corporate headquarters as it streamlines its business model amid a major reinvention of the business. The retailer will also close its customer call center in Pittsburgh, eliminating 300 jobs.

Industry News: New England

Boating supplies retailer West Marine will open a new 25,000 s/f flagship store at the intersection of Route 1 and Spencer Plain Road in Old Saybrook, CT, its largest location in that state. West Marine has more than 310 company-owned stores in 38 states…Trader Joe's is eyeing a fall opening at The Crossings at Fox Run, Newington, NH. The Newington Planning Board gave its approval to Trader Joe's plan to take over the former Pet Quarters location at the center. Currently, Seacoast shoppers have to travel to MA or ME for the nearest Trader Joe's…Clover Fast Food Inc., the popular food truck operator with multiple locations in Boston and Cambridge, is leasing a 275 s/f sidewalk space from the MBTA on the back side of Hynes Station at 354 Newbury St. Clover was the sole bidder for the tiny space on a section of sidewalk near Massachusetts Avenue…Market Basket will open at Westgate Mall this spring. The store will occupy 80,000 s/f of a new 92,000 s/f free-standing addition to the mall…Bank of America plans to close four MA branches. BofA had said it plans to close 750 of its 5,700 branches nationwide...The three Gap stores at the Pheasant Lane Mall have closed as the company prepares to open a Gap Outlet store in the new Merrimack Premium Outlets mall in June. In October, the company said it planned to close 189 locations, about 21% of its US Gap stores, by the end of 2013. Over the same period, it plans to open 50 or so Gap Outlet stores.The Gap Outlet at Merrimack Premium Outlets, a 430,000 s/f mall near Exit 10 of the Everett Turnpike, will be the first in New England...Linear Retail Properties has bought 2,865 s/f of retail space, including the garden and first-floor levels, at 304 Newbury St., and retail locations on the lower levels of 346-354 Congress St. Linear now owns 11 properties in Boston. Regionwide, the firm owns 60 retail properties...Thomas Kershaw, owner of the Hampshire House and 75 Chestnut restaurants and 2 Cheers locations, will open a new restaurant as part of the Liberty Wharf development, a 1,500 s/f Northern Avenue location…Vibram opened the company’s first US store dedicated to its glove-style sports shoe known as FiveFingers at 292 Newbury St. The 1,200 s/f store features test centers where customers can walk in the unusual footwear…New Balance will open America’s second New Balance Experience store at 583 Boylston St. this month...Best Buy stores in Boston and Wareham, MA will close as part of the retailer’s plan to shutter 50 stores nationwide

March Retail Sales Results

Commerce Department Retail Sales

US retail sales rose 0.8% last month, the Commerce Department said, below February's 1 percent increase but above January's pace. Excluding car and gasoline sales, retail sales increased 0.7%.

Source: U.S. Department of Commerce - commerce.gov

Treasury Yields

Consumer Confidence Index

The Conference Board Consumer Confidence Index®, which had increased in February, pulled back slightly in March. The Index now stands at 70.2 (1985=100), down from 71.6 in February.

Source: The Conference Board - www.conference-board.org

Purchasing Managers Index

Manufacturing continued its growth in March as the PMI registered 53.4 percent, an increase of 1 percentage point when compared to February's reading of 52.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Source: Institute for Supply Management - Manufacturing Report on Business - www.ism.ws