Thursday, August 24, 2023

As Retail Rents Flourish in Philadelphia’s Suburbs, Center City Stalls


By Brenda Nguyen Costar

As Philadelphia's premier suburban retail districts continue to see strong interest from retailers and corresponding rent growth, retail locations in Center City's downtown districts have seen average rents decline in the past year.

The Market West, Market East and Independence Hall retail districts—all located in Center City—have decreased between -1.5% and -0.9%, falling behind the region’s average 1.9% annual rent growth performance for retail space. The trio of downtown districts were the only areas in the region to see retail rents turn negative across the region’s top retail districts, those with the highest average market rents.

Long touted for its ability to charge premium downtown rents, Center City encompasses such popular retail destinations as Rittenhouse, Midtown Village and Washington Square West. These retail enclaves often command rents exceeding $100 per square foot. Despite an impressive retail recovery, marked by the opening or re-opening of nearly 200 new retailers and restaurants since 2020, Center City’s storefronts have faced heightened competition from emerging neighboring districts such as Northern Liberties and Fishtown, as well as the suburbs.

Flexible work arrangements have prompted a shift in weekday consumer demand, spurring the growth of neighborhood retail in recent years. Even with nearly fully recovered visitor foot traffic and retail sales volumes, according to Center City District, rents for downtown retail locations have softened due to the still-large number of storefronts available for lease. As of the third quarter, 225 buildings had 345 spaces listed for lease across Center City's three retail districts.

In contrast, the adjacent University City neighborhood experienced positive retail rent growth of 1.6% over the past year. While both Center City and University City boast stable demand from large numbers of students and hospital workers, University City's limited retail inventory has maintained an impressively low 1.1% vacancy—among the lowest in the Philadelphia region. Fewer than 40 properties have retail space available for lease.

In the suburbs, a growing population and flexible work arrangements have propelled a retail resurgence across numerous districts. This demographic shift has translated into heightened purchasing power, driving more demand for retail services in suburban markets. As a result, the retail landscape has expanded beyond the city limits and resulted in increasing retail rents. Average retail rent growth across Philadelphia's top suburban retail districts has ranged between 1.4% and 2.9%, exceeding the average for the entire region.

As a highly sought-after suburban location, the Main Line continues to surpass other Philadelphia-area retail districts, with an annual average rent growth of 2.9%. Even establishments that have long graced Philadelphia's downtown, such as Di Bruno Brothers and Boyds, have expanded to the Main Line to better serve their suburban customers in recent years. Growing retail interest in the area has compressed the Main Line's retail vacancy rate to 2.2%, supporting continued rent growth.

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