NORTHEAST SNAPSHOT, AUGUST 2011
PHILADELPHIA RETAIL MARKET
When compared to markets that have been hit worst by the recession such as Miami, Phoenix and Las Vegas, the Philadelphia market has remained steady. This is the place to be.
In most Class A markets — such as Main Line, Concord Highway in Wilmington, Delaware, and Baltimore Pike in Springfield — rents have been stable, and in some areas rents are even slightly up. They average $25 to $30 per square foot. In the less favorable markets, rents are in the $15 to $20-per-square-foot range. In the premier shopping district along Walnut Street in Center City, rents have decreased approximately 15 percent and now range from $90 to $110.
Vacancy rates are around 5 to 10 percent. Even the traditionally stronger retail areas such King of Prussia, Cherry Hill and Oxford Valley are now seeing big box vacancies. Circuit City and Linens ’n Things left a number of boxes empty. In addition, the growth of chains like of Walmart, Wegmans, Target and ShopRite have contributed to many supermarkets closing, including Superfresh and Pathmark locations.
Supermarket vacancies, however, have decreased overall with the new retailer Bottom Dollar entering the market and taking a significant portion of vacant supermarket spaces. In fact, the retailer has leased approximately 25 vacant supermarket spaces in the Philadelphia region.
Wegmans has increased its expansion program with a new store in Cherry Hill that is dominating the market with more than $100 million in sales. The company formed a strategic triangle in Chester and Montgomery counties with stores located in Collegeville, Malvern and King of Prussia. Virginia-based Divaris Real Estate is developing the new King of Prussia location.
While land prices have decreased and it is definitely a buyer’s market, most development activity today is redevelopment. WV-PP Towne Center LP is redeveloping the former Franklin Mint, which is located on Baltimore Pike in Delaware County. The plan for the project proposes 800,000 square feet of retail space, 400,000 square feet of office space and 800 residential units.
SSH Real Estate is redeveloping Girard Square, which contains 721,279 square feet of office and retail as well as parking garage space in Philadelphia. The project is situated in the heart of the Central Business District just two blocks from City Hall. It spans an entire city block bounded by Market, Chestnut, 11th and 12th streets.
If the residential population continues to pick up in some of the outer markets, we will see big box projects get off the ground as we’ve seen in Gloucester County and Chester County. Woolwich Commons, developed by Wolfson Verrichia Group is located at Route 322 in Woolwich Township in Gloucester County. The project is 575,000 square feet. Richwood Commons, developed by Madison Marquette, totals 400,000 square feet and is located at Routes 55 and 322 in Harrison Township. We will also see some more creative uses for vacancies as landlords begin to think outside of the box in order to fill spaces.
As for the Philadelphia’s outlook coming out of the recession, we’re in the third inning with a long way to go. Financial institutions are not lending and very few low loan-to-value loans are being granted. There has been encouraging news of retail growth with Target, Kohl’s, BJ’s and Costco. Retailers such as PetSmart and Michaels are also opening some smaller prototype stores.
Obviously, the economy plays a huge part in seeing improvements but the stabilization of the financial institutions is critical to the rebound of the real estate market. Having cash available for retailers and entrepreneurs to borrow in order to operate a business is the key to seeing a real improvement in the market.
— James DePetris is CEO of Plymouth Meeting, Pennsylvania-based Legend Properties, Inc./TCN Worldwide
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