When it comes to the Philadelphia real estate market, the retail industry is the hot topic for many commercial real estate agents. Per a Center City district report released in early December of 2016, the city has experienced a
$1 billion surge in retail spending. Subsequently, prime retail rents in Philadelphia have risen by almost 90 percent in the past five years — second to only Miami when compared to cities across the nation. Sales of retail centers in center city peaked in late 2016 at over 18 percent higher than their former top-most numbers, seen in 2008. Popular Philadelphia areas such as Walnut and Chestnut streets have been subject to high-end retail rush.
The retail spending increase is thought to be a direct result of the Philadelphia metropolitan area’s new job positions.
Caroline Lynch, Arrowhead Real Estate Services/TCN Worldwide.
Going into the fourth quarter, the city increased its jobs by 2.2 percent compared to the previous year’s numbers. Philadelphia’s local rate of employment stood at over half a percent higher than the national employment rate in late 2016. Many of the new positions — created in well- paying, upper-echelon employment sectors — have facilitated a rise in the median household income, and subsequently the disposable income, for citizens of Philadelphia and surrounding areas.
The area’s drastic retail spending increase has fueled tenant demand in the retail sector. The vacancy rate in retail has dropped to below 3 percent, after a relatively even descent from the 15 percent vacancy experienced in 2009. This vacancy rate is the lowest that Philadelphia has seen in more than 15 years, and is 90 basis points lower than the rate posted at the beginning of fourth quarter 2015. The decreasing vacancy rate has boded well for builders, who delivered on numerous project requests throughout the city, though the overall production of square footage from building projects has decreased since 2015.
Prominent retailers and property investors have seen immense opportunities for large-scale profit growth in this city of dense population. Real estate agents in the tenant rep industry regularly compete with one another for space in Center City Philadelphia and surrounding areas. Competition has pushed per-square-foot rent prices to their highest in the past eight years.
2017 is expected to bring even greater success to the retail market in Philadelphia. The growth, however, is not likely to be limited to the Center City district. As the demand increases, retailers are being forced to seek sites further out from Center City. Philadelphia suburbs in both New Jersey and Pennsylvania are currently experiencing an increase in retailers. Dean Pappas, principal partner with Arrow Real Estate Services/TCN Worldwide, represents tenants and landlords within the suburbs of Philly; he says to expect retail expansion to continue branching outward along the routes coming out of Philly and leading into the suburbs. Box stores have begun to request sites to expand their presence in the suburbs, while investors compete for a decreasing selection of retail property. Retailers are expected to continue to experience the high competition forcing utilization of more unique parameters in their property searches in 2017. Sean Sablosky, CEO and founder of Arrow Real Estate Services/TCN Worldwide, says that the retail absorption and expansion for the Philadelphia market has been increasing consistently for the past decade. We remain bullish on our market and anticipate continued success in the retail sector of the greater Philadelphia area.
— By Caroline Lynch, operations assistant at Arrowhead Real Estate Services/TCN Worldwide. This article first appeared in the February 2017 issue of Northeast Real Estate Business.