With a strong economic foundation based upon the education, healthcare and pharmaceutical industries, the greater Philadelphia market has long been revered as one of the most stable markets in the United Statesthat isunaffected by the manic swings often experienced by other major markets. Even at the height of the recession, savvy retailers remained relatively active in top-tier, well-positioned segments of the market. In fact, several used the recession to position themselves more strategically and affordably in tough-to-penetrate areas, minus the frenzied competition they faced before the downturn.
The black eye created by the closures of Circuit City and Linens ‘N Things, two of the most high-profile retail bankruptcies of the recession, has seemingly healed faster here than elsewhere,as many of the junior anchor spaces they vacated are getting absorbed by several electronics retailers. hhgregg, which had 12 simultaneous openings in the region on May 20, 6th Avenue Electronics and P.C. Richard & Sons are the most conspicuous of said retailers.
hhgregg is making its first retail foray into the Northeast while the more regionally oriented 6th Avenue Electronics and P.C. Richard & Sons found themselves conveniently based in the New York metropolitan area and able to take advantage of these well-priced vacancies. However, there are still not enough tenants in the market to take all these unusually deep spaces, in part because of the challenges that accompany splitting the boxes for multiple smaller tenants.
Other new-to-the-market retail tenants we’ve seen include Anthony's Coal Fired Pizza, Red Stone American Grill, Deal$, Freshii, Sonic, Krispy Kreme and Doctors Express, among others. Additional active tenants absorbing space include the kids play place and eatery, Monkey Joe’s, which has an approximately 15,000-square-foot footprint, as well as the video game retailer Gamestop. The recent success of these two genres seems to indicate that parents are looking to spend entertainment dollars wisely and locally in these economic times.
Quick-service restaurant companies, the most resilient segment of the retail market during the recession, continue to look for new opportunities that capitalize on strong daytime crowds and solid income levels. Given the lack of new product coming on the market, most of those growing or expanding here have taken over existing restaurant space or are retrofitting former non-restaurant pad sites and end-caps, the most popular of which are former Blockbuster and Hollywood Video stores.
There has been little attrition among restaurant chains, although sandwich seller Potbelly seems to be pulling most of their units out of the market. The chain came in paying premium rents at the top of the market and did not appear to mesh well with a region that’s well known for having some of the best cheesesteaksand hoagies in the country.
In other local news, the highly and long sought-after Apple Store will make its Philadelphia debut this summer on Walnut Street in a stately former bank building. Somehow their landing spot seems quite fitting given the Teflon-like numbers posted by Apple over the past year. The arrival of Apple should help to further galvanize a shopping district that has already attracted many great national retail brands.
Other deals of note throughout the region include Priscilla of Boston, a bridal retailer who recently took advantage of a prime vacancy within the market and relocated to Suburban Square in Ardmore. Trader Joe's, which is careful not to cannibalize its own sales and pays particularly close attention to market spacing, cast a vote of confidence for anticipated market growth by opening at the Shoppes at English Village in North Wales. Target, which had once said it was delaying its planned Uptown at Worthington store in Malvern, decided to proceed with construction during the fall of 2009 and will join a new Wegman’s supermarket for a pair of mid-2010 openings. However, lack of demand for Uptown Worthington’s lifestyle and office components has paralyzed most of the project and its future remains a question mark as ownership heads to litigation with its lender.
Overall, retail rents in and around Philadelphia range from the low- to mid-$20s per square foot in suburban grocery-anchored centers to the mid-$50s in most of the Philadelphia CBD, though premiere CBD sites are commanding north of $100 per square foot. Given the relative stability enjoyed by Center City during the economic downturn, seemingly due to an inherently captive audience and attention by shoppers to more local and energy efficient trips, other submarkets that enjoy an increasingly desirable urban setting also appear well-positioned for future growth and redevelopment. Among these markets are Conshohocken and Phoenixville.
Providence Town Center, a 760,000-square-foot power and lifestyle center in Collegeville, was completed in the summer of 2009. Its power portion is fully leased with Wegman's, LA Fitness, Best Buy, Home Goods, Staples and other quality national tenants. The lifestyle portion was mothballed for the past year but is now being brought back to the market. Regional access and growing daytime traffic generators should be enticing draws for potential tenants there.
All major projects that were committed to or started before the commercial-lending freeze have been completed. Some of these, including Providence Town Center, are plagued by higher-than-average vacancy rates, although absorption seems imminent given increased demand and little-to-no additional product coming on the market.Because the Northeast has some of the best demographics in the country, the greater Philadelphia region has successfully withstood the economy’s volatility, benefiting from retailers’ continued focus on growth in stronger, more consistent markets.
— Douglas J. Green is an X Team International partner andsenior associateat Michael Salove Company in Philadelphia.