07.03.2013 WSJ | Rents for Retail Spaces Climb Higher on Long Island
By Wall Street Journal
Owners of shopping centers and other retail space on Long Island are finding it easier to raise rents, thanks to the improving economy and a declining volume of available space.
Retail rents on Long Island rose to an average of $23.05 a square foot in the second quarter, an increase of 0.9% from the first quarter, according to a report to be released Wednesday by Reis Inc., REIS +0.89%a real-estate research firm. The second-quarter increase tied Louisville, Ky., as the highest in any market in the country, and was three times the rise nationally, Reis said.
Landlords were able to raise rents partly because the supply of space has been kept low by a lack of new development. Long Island's vacancy rate in the second quarter was 5.1%—the third lowest of the 77 markets Reis tracks, behind San Francisco and Fairfield County in Connecticut—and well below the national rate of 10.5%.
"It's already, of course, a tight market…so any kind of interest in space out there should translate to a family meaningful [rent] increase," says Ryan Severino, a senior economist with Reis.
Other parts of the New York City area also saw gains. In Fairfield County, Conn., rents in the second quarter increased 0.8% from the first quarter to $25.53 a square foot and those in northern New Jersey increased 0.3% to $24.84 a square foot, Reis says. The research firm doesn't track retail activity in New York City or in Westchester County.
Development of new retail space was slow throughout the country during the downturn. But it isn't just the economy that is blocking new projects on Long Island.
Some retail developers seeking to build on Long Island have encountered long delays from residents who are unhappy for various reasons.
Taubman Centers Inc., TCO -1.73%for example, has spent years fighting community opposition to a new mall it wants to build just off the Long Island Expressway in Syosset.
"The barriers to entry are unbelievably high," says Neal S. Kaplan, managing partner of Woodbury-based Kabro Associates, which owns eight local shopping centers with a total space of about 750,000 square feet.
Meanwhile, some of the established malls on Long Island have space that is highly desired by retailers. Simon Property Group, SPG -2.32%which owns the sprawling Roosevelt Field mall in Garden City, has estimated that more than 1.8 million people live within 10 miles of the Garden City address, and that the median annual household income is $116,302 in that area, more than double the national average.
Indianapolis-based Simon is working on a $300 million overhaul of Roosevelt Field that will include a Neiman Marcus Group luxury department store, more dining choices and an upgraded movie theater.
Residents of Long Island "love to spend money," says Mr. Kaplan.
Kabro Associates' centers are fully occupied and rental rates are near levels last seen during the housing boom, according to Mr. Kaplan. He declined to specify what the rates are.
The Fresh Market, a Greensboro, N.C.-based grocery chain that is expanding in the Northeast, will open at the upscale Kabro's Woodbury Common in Woodbury this fall.
Many companies are finding that, with space growing more sparse, they're losing bargaining power.
Between 2007 and 2010, the market was soft and tenants could demand free rent and improved space from landlords, says Jayson Siano, managing principal with Sabre Real Estate in Garden City.
"Today, the market has corrected itself," he says. "The landlords are able to stand their ground."