Retail's Shopping Frenzy

From the big box stores and shopping centers to the storefronts on Main Street, retail properties are in demand and one of the few commercial real estate markets experiencing a boom.

"The past 12 months will be remembered as a record year for shopping center sales in New England," states the

New England Market Outlook 2004 Report compiled by CB Richard Ellis, an international real estate firm with offices in Manchester and Portsmouth. "With money still chasing retail properties, institutional buyers have targeted three main product types for acquisition in the coming year: grocery-anchored shopping centers, power centers and lifestyle centers."

The strength in the retail market is attributable to big box stores buying up acres of land at a brisk rate. In Lebanon alone there is a new Kohl's store and applications being reviewed by the planning board for a new Pet Smart and Home Depot. "The heavy retail presence on Route 12A in the plaza area is the center for our retail development," says Ken Niemczyk, Lebanon's city planner. "We're seeing more national retailers coming in than local retailers."

Downtown Retail

However, main streets and downtowns are seeing storefronts fill up again as small retail and service businesses are expanding or starting up in the slow economic recovery. "The retail market is increasing as the population increases. We are experiencing the demand of that additional population," says Glen Ohlund, assistant director of the NH Main Street Center in Concord. "Independent retailers know in order to be relevant, they need to be continually reinventing their businesses."

The strength of downtown retail space is reflected in the number of new businesses moving into NH Main Street program communities. In 2003, the program experienced a net gain of 112 businesses across 19 Main Street communities, many of them occupying retail space in those downtowns.

The businesses that are moving into downtown retail space run the gamut from restaurants to specialty stores, including three different bead stores opening in Concord, Wilton and Somersworth in the past year, Ohlund says. "Retail demand is up across the state," he says.

A major reason for the increasing popularity in downtown retail space is size. "If you're a start-up business looking for a smaller space, your greatest opportunity is in downtowns," says Ohlund, who adds it's not just start-ups that are grabbing up retail space but also existing businesses that are opening new locations.

Low Vacancy Rates

Many downtowns are experiencing low vacancy rates in their retail sectors. More than a decade ago, 28 percent of Littleton's groundfloor commercial spaces in the downtown were empty. Today, that rate is 5 percent, Ohlund says. And while big box stores have been blamed for drawing smaller retailers away from downtowns, Claremont is now seeing businesses returning to get away from the traffic gridlock in the area of Wal-Mart, Ohlund says. "We've seen 70 new businesses relocate to (Claremont's) downtown in the past four years, from a large furniture store to a Chinese restaurant," he says.

Dover has the highest retail vacancy rate in the Seacoast at 30 percent, but it is not due to empty storefronts along its Main Street, which is essentially full. While neighboring Seacoast communities have seen large department stores and supercenters move in, the higher vacancy rate in Dover is because three big box stores have remained empty since Ames, Stroudwater Books and Service Merchandise closed.

Dover's downtown, however, saw retail space shrink from 11 vacant storefronts in 1999 to three currently. "We could use more small retail space in Dover. We're seeing six new restaurants coming in the next six months," says Deborah Dineen, director of Dover's Main Street program. Dover is also seeing an increase in art-related businesses occupying downtown retail space. Within the past year, Woodwright, a customfurniture store, and Boheme, an art gallery, have opened. The success of downtown Dover has spurred the Main Street program to talk with building owners about developing second-floor spaces in buildings. Dover officials also want to see more mixed-use development along the waterfront, which could potentially include retail space, Dineen says.

The city of Rochester recently conducted an inventory of its downtown commercial properties, which revealed there were 17 properties for sale or lease. However, within two weeks of completing the survey, four of those properties were under agreement and off the market, dropping the downtown vacancy rate to less than 10 percent, says Karen Pollard, economic development manager for Rochester. The city has been targeting restaurants to fill retail space in its emerging arts and entertainment district.

City officials know of two retailers that are under contract to move into downtown retail space, including a computer store. In addition, the past year has seen the Hip Hop Shop, a clothing store for teenagers; Regency Gems, a jewelry store; Cozy Nest, a gift shop; artstream, a gallery; and Vathally's, an Italian restaurant, move into downtown. Many of the businesses are on the same block where an investor made improvements in a multi-tenant building and then sold the spaces to businesses rather than lease them. "All the spaces went almost immediately. We're going to be holding classes for other building owners and investors on how to do that successfully," Pollard says.

The Community Organization for Rochester Enhancement recently surveyed downtown businesses and found 29 percent are retailers; 17 percent are restaurants; 30 percent are service providers; 15 percent are finance, real estate and insurance businesses; 5 percent are medical and law offices; and 4 percent are auto related. "We have a real mix in the downtown area and have more than 57,000 customers visit downtown businesses on a typical week," Pollard says.

The Seacoast's retail market has been consistently strong, according to a year-end 2003 report compiled by CB Richard Ellis. "Demand continues to be strong for retail, driving vacancy rates to all-time lows for the Seacoast. Portsmouth and Newington, the largest retail markets, continue to be the most desirable locations for retailers, while both markets maintain vacancy rates equal to 1.2 percent and 7 percent respectively," the report states. CB Richard Ellis expects retail vacancy rates in the Seacoast to remain stable throughout 2004.

The city of Manchester has seen its retail spaces in downtown filling up, some commanding rents as high as $13NNN, says Bill Jabjiniak, Destination Manchester coordinator. "Retail demand is still steady, even in the downtown and amongst smaller spaces," he says. "We have a variety of entities interested in the downtown area - some local and some that are regional."

Downtown Manchester has seen several restaurants and a martini bar move in during the past year as well as retail establishments, such as Splash, a high-end bath fixture retailer in Nashua that opened a second location on Elm Street in Manchester. "There's been a renewed focus on making downtown Manchester a destination place," Jabjiniak says. He anticipates further growth in the downtown area with vacant storefronts being rented by new retailers.

The city is also seeking to diversify downtown by bringing in more housing. Mike Harrington, managing broker for the Manchester office of CB Richard Ellis, says more condos and residential spaces in the downtown area will also encourage more retailers to move in.

"Retailers like to see that population base," he says.

Stable Lease Rates

In general, retail rents in downtown areas are going up, Ohlund says, and range anywhere from $4 to $25 a square foot. In fact, in the Seacoast, rents for office and industrial space decreased between 2002 and 2003 while retail remained the anomaly with an average rate of $11.13NNN per square foot, an increase of seven cents per square foot, according to the CB Richard Ellis report. "We've seen a 20 percent increase in retail rents in the past few years," Ohlund says.