Improving economy sends rents soaring in Greenwich, Westport
Improving economy: Landlords look to recoup income lost during recession
Updated 10:01 pm, Wednesday, June 12, 2013
Beam & Barre, a dance studio and supply shop, is at its fourth location on Greenwich Avenue in Greenwich since its founding more than three decades ago, and manager Joanne Tully doesn't want to make any more moves as retail rental rates on the trendy shopping area continue to approach pre-recession prices.
"We've been in this location 10 years," said Tully, who has been employed at the 2,000-square-foot store at 352 Greenwich Ave., for 24 years. "We fill a niche in the market. Local people support local businesses. It's not easy. We have to sell a lot of tights."
The idea of average rents on Greenwich Avenue returning to the $100 per square foot range is shocking to Tully.
"It's absolutely crazy. If you look at the Avenue now, it's mostly chains because they can afford the rents," she said.
A short distance away at 278 Greenwich Ave., Lynne Jenkins, owner of Lynnen's, a 2,500-square-foot linen specialty store, is grappling with a $144 per-square-foot lease that escalates until the contract ends in 2017. Jenkins, who started her business in 1980, recently agreed to sublease nearly 500 square feet to R. Simantov Fine Jewelry to help pay her rent.
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"I re-signed my lease in 2007, my biggest year. I didn't even blink," Jenkins said. "This has just about killed me. We'll have to move to a side street."
Rising rents are something that many retailers across Fairfield County can expect to face as the economy improves and landlords look to recoup income that was lost during the recession.
"Retailers need to be on top of their games in towns like Westport, Darien and Greenwich," said Tom Torelli, managing partner of Allied Property Group in Greenwich. "The tenant will always say rents are too high when their sales haven't kept up. When rents go up, it shakes out the marginal retailer."
A rebounding economy has revived the retail atmosphere of one of the most exclusive shopping districts in the United States.
"The worst I saw in retail on Greenwich Avenue was in 2009, when 20 or 21 stores were available" for rent, Torelli said. "Now, there are only six or seven available."
The situation reflects a national trend, according to reports by real estate services firms Jones Lang LaSalle and Marcus & Millichap, as a rebounding economy encourages national and large regional retailers to expand.
The industry has waited for demand to catch up to supply, but vacancy rates are reaching a point that will give at least some landlords the clout to demand slightly higher rents, according to Jones Lang LaSalle.
The average U.S. retail vacancy inched down to 6.7 percent in the first quarter but well above its 10-year average, Jones Lang LaSalle reported.
Strip malls and neighborhood shopping centers still have the highest vacancy rate, at 10.4 percent, but they are starting to see a turnaround, with vacancies dropping some 11 percent year on year for the first time since 2009.
"We're not quite there yet, but by the end of this year, virtually all markets should see rent growth," said Greg Maloney, president and CEO, Jones Lang LaSalle Retail Group, in prepared comments. "Quite a few markets are already posting year-over-year growth, including Miami, Fort Lauderdale, Dallas, New York, Tampa, San Francisco, Hawaii, Los Angeles and Boston."
Most of those rent-growth metros are enjoying robust local economies, many of them driven by energy-sector or high-tech employment, according to Jones Lang LaSalle.
"It's important to note that many of the markets that are experiencing robust growth are also the ones that had the steepest decline," Maloney said.
Upscale Fairfield County communities like Greenwich and New Canaan were not hit as hard as others across the country, but the retail mix in their shopping districts could still change, said Jesse Tron, spokesman for the International Council of Shopping Centers and a Greenwich resident.
"They are more resilient because it's an affluent area where many of the people are working in New York City. New York City wasn't affected by the recession as other cities. The tenant mix on Greenwich Avenue is totally different than outside Omaha," Tron said, citing a CoStar report showing that retail rents are bouncing back. "I'm sure that in Fairfield County, they'll be back to their super, super high levels. It means you'll have more of the high-end brands."
In the more upscale shopping communities, independent store owners took advantage of reduced rental rates during the recession as landlords scrambled to fill space, but as their leases expire, they may be forced to look elsewhere.
Side streets off downtown shopping thoroughfares like Greenwich Avenue and Main Street in Westport, as well as nearby strip malls, could benefit from offering lower rents, said Ron Brien, president of Alliance Commercial Property in Greenwich.
"My best advice for mom-and-pop stores on the Avenue is to build a good relationship with the landlord. Some landlords will renew leases below market because they have a relationship with the tenant, and they don't want to pay for fit-outs and brokerage fees for a new tenant," said Brien, adding that rents on Greenwich Avenue are soaring. "After the crash, there were deals being done on the Avenue in the $50s, $60s and $70s. Now, for those same spaces, its $100.
"Rents on Main Street are between $100 and $120 per square foot. They aren't quite as high as in 2008. Retail is doing well, and rates are going up," he said. "The demographics drive the retailers with the average annual household income between $180,000 and $200,000. These towns (lower Fairfield County communities) bounce back because people have the money."
"We're definitely seeing more activity in 2013 than in 2012 and 2011. We're seeing prospective tenants looking for more space. I'm doing more deals," said Lotstein, who operates in Stamford, Norwalk, New Canaan and Greenwich.
During the recession, retail rental rates went down about 10 percent, and landlords worked with prospective tenants to attract them to a property, Lotstein said, but now rates are increasing and landlord concessions are dissipating.
High Ridge Road, one of Stamford's busiest retail areas with a series of strip malls, has seen a surge in tenancy, including the recent arrival of Pet Valu at the former Hobby Town space and the coming of a Trader Joe's later this year.
CoStar data show that strip malls in Stamford and Norwalk are demanding triple-net rent in the $30 range. A triple-net lease is a net lease where the tenant agrees to pay a monthly lump sum, as well as the property taxes, property insurance and maintenance.
"Businesses have more confidence in terms of opening a store or expanding," Lotstein said.
Bridgeport retail rentals remain in the doldrums, but Fairfield rental retail properties are seeing an uptick in rates, said Jon Angel, president of Angel Commercial in Fairfield.
Triple-net rents on Black Rock Turnpike vary wildly from $13 per square foot on the east end to $50 farther to the west, and they have gone up at varying percentages, he said.
"On the Post Road, you'll find rents in the $30s and $40s, but $49 in the Brick Walk area," he said, adding that in some cases they were in the $20s during the recession.
As the inventory goes down, rents will continue to climb, Angel said.
Away from lower Fairfield County, the retail-rental situation is less hectic, according to Joe Wrinn, a broker with Goodfellow Ashmore in Danbury, who said he is seeing some increase.
"Are they going up like in the lower county -- no," he said, adding that rents at the Shops at Marcus Dairy are in the $50-plus range and in the $20- to $30-range on busy Federal Road. At Exit 8 off I-84, rates are only in the high teens.
As the local economy stabilizes, and consumers are able to spend more, the retail market benefits, but competing forces are in play, said Erin Patterson, research manager at the Stamford office of Jones Lang LaSalle.
"Disposable income is bouncing back, but consumers are more likely to spend online," she said, adding that chain restaurants are seeing opportunities in the region. "We have the restaurant/food chain piece in the mix that is driving demand for retail space, particularly in trendy, 24/7 environments where people are looking for places to congregate and take advantage of some of the new culinary trends that have emerged, thanks to food-related media enterprises."
Along major thoroughfares where big-box retailers reside, popular eateries are emerging, perhaps to attract consumers back into these stores, she said, adding area landlords are targeting food chains and franchises such as Five Guys and Chipotle Mexican Grill as an alternative to clothing and merchandise retailers.
In April at an International Council of Shopping Center luncheon at Chelsea Piers in Stamford, a spokesman for Colorado-based Qdoba Mexican Grill said it plans to open 25 to 35 restaurants in Connecticut over the next four years. It opened a Norwalk location this month.
Seeing the signs of the economic resurgence, Greenwich-based developer Belpointe Real Estate has started construction of its Waypointe project, a mix of apartments and more than 90,000 square feet of retail and restaurant space on West Avenue in Norwalk, which should be completed in 2015.
Norwalk is anticipating construction of a 141,715-square-foot Lowe's home improvement store on Route 1, slated to open in 2015, and plans for a 108,209-square-foot BJ's Wholesale Club on Main Avenue have been submitted to the city.
"There are a lot of indicators that retail is looking doggone good in the region. Building plans show there's confidence in the retail sector," said Tad Diesel, Norwalk's director of marketing and business development.
Farther to the east, Bridgeport is benefiting from the improved retail market. City officials envision the new 150,000-square-foot Bass Pro Shops store as the anchor tenant for its 50-acre Steelpointe Harbor project. The project, scheduled for completion next year, will include street improvements.
In Shelton, a plan developed during the recession by Blakeman Construction, who anticipated an economic turnaround, calls for a strip mall including a grocery store anchor, at the former Crabtree Auto Park on Bridgeport Avenue.
Shelton officials approved the 132,000-square-foot complex, which is looking for an anchor tenant, said Susan Coyle, co-owner of Real Estate Two in Shelton, which represents the property.
The project is for sale, she said, but she is first seeking an anchor tenant to make it more attractive to potential buyers.