The completion of 3.1 million sf of retail in this market this year compares with 2.3 million sf last year, giving Philadelphia its largest amount of new retail space since 1999. Nearly one third of it, however, will be delivered in suburban New Jersey's Burlington County. New construction and affordability point to increased investment activity in Bucks County, PA as well as Burlington, according to the report.

Among the markets with the highest number of expected completions this year in M&M's ranking of 40 markets, Philadelphia ranks fourth, flanked by Chicago in the number three slot and Atlanta in fifth place. In the overall ranking of M&M's National Retail Index, it falls behind Houston at 26, and ahead of Dallas/Fort Worth.

"Investors view Philadelphia as a reliable long-term investment location with high barriers to entry," says Jeffrey R. Algatt, regional manager of M&M's local office. "The densely populated urban areas of the region where land is scarce, such as Center City and the inner ring suburbs, are particularly attractive."

M&M projects a rising retail vacancy rate in the overall MSA this year for the fourth consecutive year. It is expected to climb 10 basis points to 8.9%, attributable to a slight oversupply rather than deteriorating demand. Rental rate growth in the MSA has consistently risen between 1.8% and 2% since 2001, and is expected to grow another 2% this year, reaching an average of $17.70 per sf.

Algatt says, "Investors may find repositioning opportunities as owners of older centers struggle to compete with newer centers. In addition, grocery-anchored centers are highly sought after throughout the MSA." He predicts that centers in the region will sell at cap rates in the low- to mid-8% range, even in less traveled areas, and newer properties that have long-term anchor leases and are located in high-growth areas will trade in the low- to mid-7% range.