Life After Kmart for Three Philly-Area Retail Properties

 By Adrian Ponsen CoStar Analytics

The coronavirus has brought plenty of headaches for Philadelphia retail landlords, many of whom were already facing intense competition from Amazon even before the pandemic got underway.

But anyone who has been to a crowded local supermarket, fast-food drive-thru or home improvement store recently can easily confirm that despite rising e-commerce sales, most Philadelphians haven't given up on leaving their homes to buy things. Far from it.

While some retailers are struggling and closing locations, others are thriving. The latter group's resilience, and their customers' willingness to turn out and support them, even amid a deadly pandemic, is a testament to consumers' enduring preference for browsing at certain brick-and-mortar retailers over buying goods online.

The stark contrast between winners and losers among retail tenants also highlights the scale of opportunity in today’s market for investors who can re-tenant low occupancy shopping centers.

Kmart is one down-and-out retailer whose former locations are being repurposed at a particularly fast clip. It’s worth examining a few recent examples as templates for how today’s growing number of vacant retail spaces can be brought back to life.

713 E. Baltimore Ave., Clifton Heights, Pennsylvania

This 93,000-square-foot property in Delaware County was occupied solely by Kmart until late 2019. But even amid the pandemic, Gator Investments' decision to subdivide the building helped secure leases from Big Lots and Lidl for well over half of Kmart’s former space.

Meanwhile, most of the remaining square footage is being marketed as industrial space. The owners are also seeking tenants for a planned 3,800-square-foot outparcel with optional drive-thrus. As this repositioning takes shape, the loss of the property's former anchor may have only accelerated the property’s evolution into a more bustling retail destination than it was before.

7101 Roosevelt Blvd., Philadelphia

This former Kmart, located along the arterial roadway of the most ethnically diverse corners of Philadelphia, closed its doors in early 2019. One year later, an entity taking title as Hengda Investment Properties LLC purchased the 70,000-square-foot property for $10.3 million, or about $148 per square foot, according to Philadelphia real estate records.

The buyer’s address is recorded as 4429 N. American St., which is the site of King Seafood, a wholesale seafood distributor in the Juniata neighborhood. The buyer's plans for the former Kmart site have not yet been disclosed, but moving King Seafood to this new Roosevelt Boulevard address, or opening a similar business in the new location, could fit well with No. 1 Asian Supermarket and the handful of Chinese and Vietnamese restaurants that are all located on the adjacent parcel.

3205 E. Lincoln Highway, Thorndale, Pennsylvania

This 103,000-square-foot former Kmart property sold at the tail end of 2020 for $4.15 million to Thorndale Realestate LLC, according to public real estate records. The buyer's recorded address is 230 N. Dupont Highway in New Castle, Delaware, which is where the Airbase Carpet & Tile Mart is located.

Chester County, where Thorndale is located, has the highest average household income of any county in Pennsylvania, and no shortage of large, single-family houses over 2,000 square feet. When combined with the region’s fast-rising homeownership rate, these features could prove to be fertile ground for a growing flooring business.

It’s difficult to pinpoint what exactly makes former Kmart locations particularly compelling properties for growing retailers in today’s environment, though their ample parking certainly doesn’t hurt. They also tend to offer large spaces in dense, low- and middle-income areas, where residents have been slower to adopt online shopping. And since most Kmarts were built as standalone properties, these locations also offer retailers the rare opportunity to secure a large footprint, without sharing a parking lot with powerhouse national chains.

Regardless, it will be worth watching how these properties evolve as this could be a trend that likely won’t stop, given there are more than 10 other recently shuttered Kmart locations in the Philadelphia metropolitan area alone.

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