Redefining Retail Real Estate in Philadelphia
When the Philadelphia Eagles were headed to the Super Bowl in 2018, they were the underdogs. The odds — and subsequently media headlines — were against them. But the team proved those predictions wrong, and went on to clinch its first championship.
The retail market in Philadelphia, and nationwide, tackled similar challenges last year. As mature department stores shuttered and retailers filed for bankruptcy, the industry faced ongoing uncertainty. However, the rapidly changing dynamics represent vital opportunities for retail real estate owners to reimagine the mall experience.
In Philadelphia, the high density of residents, workers, college students and visitors create a more than $1 billion retail demand annually, according to the Philadelphia Retail Report 2018 compiled by the Central Philadelphia Development Corp. In order to capture consumer interest, industry leaders need to evolve alongside the community’s changing needs and landlords and brands today have been transforming the conventional retail real estate model, carving a new path to success.
Looking ahead, the future looks bright. Here’s a look at key trends driving the next level of retail real estate in Philadelphia.
As habits of shoppers continue to evolve, brick-and-mortar space today can offer opportunities beyond traditional retail whereby real estate owners are diversifying their tenant mixes and creating new traffic patterns. Malls, for example, are integrating an array of experiences into the tenant mix, including dining, entertainment, fitness, grocery, beauty, and everything in between.
It’s this dynamic blend of concepts that is appealing to visitors, and this diversification is proving successful. According to the International Council of Shopping Centers, nearly half (45 percent) of consumers say the presence of non-retail tenants increases the amount of time spent at the center, while about two-fifths (38 percent) claim they encourage more frequent visits.
In Philadelphia’s downtown, several of these experiential sectors are gaining momentum. Center City has seen 22 boutique fitness concepts, 22 quick service restaurants and 10 “clicks-to-bricks” tenants open over the past five years. By adding in-store technology, customizing products, and sourcing local and sustainable ingredients, retailers and restaurants are attracting consumers to their locations.
Flexible Use of Space
Retail space isn’t a one-size-fits-all approach, and many brands are looking for the optimal environment that meets their needs.
Today, retail landlords are leveraging pop-ups, kiosks and other formats to fill that demand. It’s a win-win-win as brands can experiment with physical space and interfacing with customers; landlords can bring in new revenue and drive traffic; and shoppers can discover new brands. This flexibility is particularly important for e-retailers expanding to physical retail, as well as small businesses expanding their footprint.
In Philadelphia, a new retail project will be utilizing this short-term lease model to help promote several local businesses. Fashion District Philadelphia, a joint venture between PREIT and Macerich, will be collaborating with several mom-and-pop shops in its Uniquely Philly program. Through this collection of homegrown retailers, the project will provide opportunities for those businesses to grow and connect with Philadelphia shoppers.
Differentiating by Densifying
Another creative method to leverage retail real estate is densifying the property, or adding residential or hotel units. A natural next step for suburban malls that creating opportunities to enhance asset value and diversify revenue streams, also enables smarter growth for communities. This densification, coupled with the addition of dining and entertainment experiences, is supporting the transformation of retail properties from traditional shopping centers to true lifestyle hubs, where residents and visitors extend their time at the property and increase frequency of visits.
Densification can help further differentiate high performing properties located in high barrier-to-entry markets. PREIT, for example, sees an opportunity to add residential units and hotels to properties in several of its Philadelphia market malls, including Moorestown Mall in South Jersey and the Exton Square and Plymouth Meeting Malls in the PA suburbs.
Retail has an underappreciated resilience and transformation opportunity that will continue to evolve alongside consumer preferences. The industry overall has the potential to capture consumers’ attention for an overall social experience and in fact can help transform entire neighborhoods.
Center City East in Philadelphia, for example, is adding 1.2 million square feet of retail — a total investment of $910 million — including the Fashion District. With the introduction of dozens of new retailers, restaurants and experiences, this subsection of the city will be completely reimagined.
And that’s just the tip of the iceberg for retail in Philadelphia, and across the county in the year ahead.