NORTHEAST SNAPSHOT, MAY 2005

Philadelphia Retail Market

The Philadelphia retail market is currently thriving. Retailers are finding creative ways to enter urban areas and development is on the upswing throughout metro Philadelphia. Known as a strong market for retailers, companies are seeking to enter Philadelphia primarily through urban infill and suburban development, says Kenneth Balin, president and CEO of Philadelphia-based AMC Delancey Group. “Developers are focused on creating value through renovation of existing property and the planning and construction of lifestyle and big box developments — sometimes in conjunction with one another,” says Balin. “In the city, several new big box developments have recently been added to the market, while three lifestyle centers are currently in the planning stage.”

The majority of development is occurring outside the city in the surrounding suburbs of the Delaware Valley. Realen Properties is planning a major retail development on part of a former golf course in Upper Merion, Pennsylvania, as well as a large retail town center at the former Garden State Park. Also, Freedman & Cohen is planning a lifestyle and power center development in Medford, New Jersey.

Though most of the large projects underway are outside of the city, a number of retailers are utilizing urban infill to enter the crowded market within the city limits. Two power centers are underway in south Philadelphia, and one is being built in the northeast quadrant of the city; each totaling approximately 500,000 square feet. The Goldenberg Group is finishing construction and leasing of its Whitman Square in northeast Philadelphia and Columbus Commons in south Philadelphia, and has the Park Town West center underway in west Philadelphia. These projects illustrate the desire and ability of big box retailers to enter the urban marketplace. Tower Investment is planning the 35,000-square-foot Shops at Liberties Walk, a smaller boutique retail development in Northern Liberties to complement its Liberties Walk residential project in the neighborhood. In Center City, the former Borders Books & Music store on Walnut Street has been sold and will be redeveloped for multiple retailers.

Retailers and restaurants with relatively small space requirements, such as the growing collection of fast-casual restaurants, are finding a number of viable locations in which they can enter the market and are quickly occupying these smaller spaces. According to Balin, new quick-serve restaurants such as Cosi, Quiznos Sub, Panera Bread and Qdoba are occupying space in many infill locations. “Smaller retailers are modifying formats to create more efficient use of space, like Blockbuster, which downsized from the old 10,000-square-foot format to 6,500 square feet,” he says. “Development in urban infill has been driven by scarcity of locations, low interest rates and in many cases, dramatic residential activity.”

Lifestyle centers and hybrid centers that join the lifestyle format with either big box or grocery components are a growing trend in suburban development in metro Philadelphia. The traditional lifestyle format is experiencing new designs as developers seek to find the best mix of tenants to draw consumers. Balin has noticed a trend away from stand-alone grocery-anchored development as developers seek to integrate grocery stores into larger retail and mixed-use projects. Notes Balin, “Current trends revolve around the buzz of the lifestyle center and the strength of the big box format. As the tastes of consumers evolve, we see a blend between malls, grocery-anchored centers, lifestyle centers and big box. For example, US Realty is developing a shopping center on Route 611 that will combine big box, grocery and lifestyle components.”

Though there is much new retail development, there is little doubt that retailers will quickly occupy the new space. Leasing activity is strong throughout the Philadelphia market. In Center City, rental rates are increasing and have reached as high as $160 per square foot in the Walnut Street retail corridor. According to Balin, vacancy rates are decreasing across the region as rental rates continue to increase gradually. Big box retailers such as The Home Depot, Target and Lowe’s Home Improvement Warehouse are actively searching for infill locations in urban areas they had not previously considered locating, thus helping fill in large areas of vacant space.

As developments are completed and leases are signed, new submarkets will emerge as the next hot areas for retailers. Balin believes that the Walnut Street corridor east of Broad Street will become an enhanced retail destination in the near future. “Currently, the market is slow east of Broad, but as rents increase west of Broad and as the city develops a more robust theater district, this area may see more dynamic retail activity. In addition, the next wave of multifamily development may well be the upper floors of the retail stores on both Walnut and Chestnut streets, adding more density to the downtown shopping core.”

As in 2004, the retail sector in Philadelphia is experiencing sustained, strong growth. This is due in large part to retailers’ willingness to modify their layouts and sizes to enter the market and to developers’ ability to mix and match different retail components to best serve consumers. Development should maintain its current pace, with developers trying new combinations of retailers and uses in an effort to bring the most convenient — and therefore most popular — tenant mix to shoppers.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.