Wednesday, June 10, 2015

Philadelphia Retail Improving

by Steve Lubetkin,

Steady improvement in the jobs picture is leading to increases in retail spending and a corresponding expansion trend among retailers in the geography, according to second quarter Retail Research Market Overview.

“High-end grocers Whole Foods and Wegmans are expanding in the wealthier suburbs,” the report says. “Meanwhile, several other smaller retailers including discount stores and quick-serve restaurants are also growing their footprints. In the wake of Bottom Dollar’s exit from the market earlier this year, Aldi purchased all 46 locations in the Philadelphia area and has plans to open 20 of them as Aldi stores.”

Developers are likely to speed up the completion of their retail projects to accommodate the rising demand, the report says. Builders are more confident that projects will get leased, and are beginning some before completing the leasing process, according to the report.

“The Fed recently indicated that it may raise its short-term lending benchmark as early as June, though September is the most likely target as the central bank awaits further tightening in the labor market and stronger wage growth. Against the pros­pect of an inevitable rise in interest rates, investors remain highly motivated to purchase retail assets and debt providers continue to compete for market share while also maintaining underwriting discipline.”

Competition for retail properties in the Philadelphia market is intense because of limited inventories.

“Demand for retail properties in the Philadelphia metro is rising as steadily improving operations and higher yields at­tract increasing investor attention from buyers around the country,” the report says. “Compressed cap rates in the New York and Washington, D.C., areas are encouraging not only institutional investors, but also private buyers from outside the region to search for assets in the metro.”

Other highlights of the report:

Shopping center vacancy rates averaged 9.3 percent in the first quarter, down 20 basis points from the previous year. Power centers notched a similar decline, to 6.1 percent, but mall vacancy rates increased 70 basis points, to 5.4 percent.
Southern New Jersey vacancy rates remained higher, about 100 basis points above the previous low, at 8.6 percent, but rising demand has led to improvement over the last year.
Net absorption will approach two millions square feet, helping average vacancy rates to decline to about 6.3 percent.
Rents were up 1.6 percent to $16.11 per square foot at the end of the first quarter. Rents in South Jersey fell 3.5 percent, to $12.30 per square foot.
Storefront locations in Center City Philadelphia averaged sales of $400 per square foot. Newly built drugstores can average $500 per square foot, and national tenants in long-term leases at good locations can average “north of $600.”

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