Monday, September 12, 2016

Positive Effect For Philadelphia Retail From Strong Hiring

by Steve Lubetkin,
Led by the professional and business services sector and the burgeoning medical community, Philadelphia added nearly 62,000 positions in the last 12 months ending in the second quarter, according to research.

The commercial real estate services firm says hiring in these typically well-paying employment sectors facilitated a lift to the metro’s median household income, which rose faster than the national average in the second quarter to more than $67,500 annually and boosted annualized retail sales.

The hiring “will bode well for retail spending, further intensifying tenant demand. Rising demand for space has prompted builders to move forward with a number of projects, including several in suburban locations, that are slated for delivery in 2016. While the majority of these developments are smaller in scale, a number of projects with more than 100,000 square feet are underway with completion scheduled next year. With minimal large-scale deliveries lined up for this year and strong absorption, vacancy will fall below 6 percent, encouraging the average asking rent to rise to an eight-year high.”

Improving market conditions will remain a draw to Philadelphia as investors scour the area for retail assets. As the average cap rate for retail assets recently dipped by 50 basis points and the amount of value-add opportunities on the market is limited. Investors will have to rearrange their standards to obtain desired returns.

“Whether this means targeting space in tertiary submarkets, acquiring centers requiring aggressive lease up, or bidding on centers with any size of undeveloped parcels, buyers can expect increased competition for both class B and C properties,” the research report concludes. “Assets priced between $1 million and $10 million should garner the most local and regional buyer interest, with prices rising alongside competition. Cap rates in the multi-tenant space will range widely from six percent for grocery-anchored centers to nine percent for suburban-located strip centers. Recent transaction figures suggest neighborhood centers should represent the most sought after multi-tenant type, as these properties often present buyers with the most creative flexibility.”

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